“They have figured out a way to expand, which is a positive sign,” says BMA Funds CEO Muddassar Malik in an interview with The Express Tribune.
He believes that 1998 onwards, the Karachi Stock Exchange (KSE) has been the best performing index in the world. “In fact, it is the best performing amongst all asset classes, including MSCI emerging markets, MSCI world index or even gold,” added Malik.
He explains that the year 1998 is an important benchmark because the period that followed was a turbulent one for the country as the nuclear tests had taken place and sentiments were low. “The market has shot up 750 per cent in dollar terms, which comes to almost 60-65 per cent per annum.”
Buying a stock
“Companies which have the ability to weather a storm and enjoy a good market share in their respective sectors are ideal stocks to buy, irrespective of whether they are growing or not,” says Malik. Organisations with strong cash flows will boost their earnings despite increasing interest rates, he explains.
Given the prevalence of double-digit inflation, input and output prices of operations are both likely to go up. “I like firms that can pass the rising cost on to customers so they can protect their gross margins,” says Malik.
The last pointer to look out for, according to Malik, is a firm’s long-term strategy as this gives some predictability of future movements in stock price.
Organisations from the banking sector that meet these criteria include MCB Bank, National Bank of Pakistan and United Bank Limited. In the fertiliser sector, he pointed out the two Fauji Fertilisers and Engro Fertiliser.
In the cement sector DG Khan Cement, Lucky Cement and even a comparatively smaller group like Cherat Cement, earned the CEO’s seal of approval. “Scrips that are not traded like Packages Limited, Unilever and Nestle are also good buys,” added Malik.
He shares the view that the oil and gas sector is very promising as there is a persistent demand for oil in the domestic market, which is mostly met from imports. “No matter how much oil is produced by local companies, it will all be consumed,” said Malik.
However, giving the example of Lotte Pakistan PTA – a comparatively cheap stock with a high free float often found at the top spot of the volume leaders board – Malik highlighted that retail investors feel more comfortable in playing with a low-priced stock instead of a Rs270 Pakistan State Oil blue-chip scrip.
Foreign interest
Volumes at the Karachi Stock Exchange have come down drastically over the past months, largely because of the deteriorating economic and political situation. The average number of shares traded daily, for example, has fallen more than two times to 56.52 million in August compared with last year’s average of 155.27 million shares in the same month.
“The market is going through extreme pessimism – a time when the economy is unstable and indicators are trending in the negative direction,” said Malik. Investors want good liquidity in the market and after the margin trading system is reintroduced, the country will see more investment gradually, he added.
When risk increases, foreign investors tend to stop inflows and this phenomenon has been seen for years, said Malik. “However, the interesting fact is that inflows did not stop at the time of floods.”
August – the months of the floods – witnessed the same amount of foreign inflows of $40 million that came in July. According to Malik, foreign inflows of more than $600 million have been recorded this year.
Published in The Express Tribune, November 4th, 2010.
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