Pakistan’s equity market remains lucrative investment avenue

KARACHI: Pakistan’s equity market is still one of the world’s most lucrative investment avenues for the global investors despite the recent massive foreign selling, analysts said, expecting more inflows as soon as the buyers rebalance their portfolios towards better value.
An analyst at Arif Habib Limited said Karachi Stock Exchange (KSE), with a forward PE (price-earning) multiple of 7.9x, is one of the world’s profitable parking avenues.
Turkey is trading at forward PE of 8.13x, Bahrain at a PE of 8.25x, Kenya at a PE of 8.76x and Dubai is trading at forward PE of 8.88x.
“Pakistan’s market PE multiple has a significant potential for re-rating vis-à-vis its growth profile on risk-adjusted basis compared to peers. And, more foreign inflows should therefore be observed in Pakistan’s equities as soon as the foreign investors rebalance towards better value amongst other equity peers,” said the analyst.
Foreign selling has been a source of a concern for local investors as foreign investors were withdrawing money from emerging markets.
As per data compiled by NN Investment Partners, the money has poured out of emerging markets at a faster pace than during the global financial crisis in 2008 and 2009, with about a trillion dollars withdrawn since July 2014 – double the amount that flew during the nine months to March 2009.
Analyst Khurram Schehzad at Arif Habib Limited said foreign investors, holding 33 percent of the stock market’s free float, have strategic interest been mostly unhurt.
An analyst said long-term bullish outlook remains intact.
About global markets rout, analyst Syed Atif Zafar at JS Global Capital said local bourse is largely immune to global equity and currency crisis on the back of strong liquidity and profitability and nonexistence of margin trades relative to other markets.
Zafar said falling oil price has already started yielding dividends in the form of multi-year low inflation readings coupled with multi-decade low interest rates, while renewed growth prospects in the wake of various investment initiatives and improving law and order situation should further improve risk/reward profile of the country.
Analyst Fawad Khan at KASB Securities said the present macroeconomic backdrop is quite favorable, valuations are undemanding and risks to corporate earnings growth are quite balanced.
“While abrupt currency movement, drop in commodity prices and global deflation fears were as widespread in 2008 as in 2015, today the country is in a better position to emerge as a net beneficiary of drop in commodity prices,” Khan said.
Experts, however, said the only negative is the increase in foreign ownership to 35-40 percent from 25-30 percent earlier as a result of government’s privatisation program and the rise in assets under management tracking frontier markets.