Pakistani shares tracked by MSCI drop 33 percent: PSX snaps eight-year gaining streak by losing 10pc in FY18

KARACHI: The benchmark index snapped its eight-year gaining streak after giving up nearly 10 percent in the financial year 2017/18, while MSCI-EM Pakistan also yielded a negative return of 33 percent owing to macroeconomic issues, political unrest, and continued sell-off by global funds in emerging markets.

Analysts said all the above factors led to dismal performance of the market, which was once considered to be a blue-eyed destination for offshore investors.

Zeeshan Afzal, head of research at Insight Securities, said the FY18 ended on a negative note, whereas benchmark index posted a negative return of 10 percent (or 22 percent in USD terms) during the fiscal year.

“The new fiscal year is starting from Monday, July 1, 2018 amid deteriorating macroeconomics, soaring twin deficits, and declining foreign exchange reserves, stoking fears of further currency devaluation,” Afzal said.

He said despite rupee devaluation, foreign financial institutions remained net sellers, leading a major outflow of $285.9 million, whereas local insurance companies topped the buyers’ list with $202.5 million worth of inflows.

Sherman Securities in a report said FY18 turned out to be the worst year for Pakistan both in-terms of index performance, as well as market activity. The KSE-100 index plummeted 22 percent in US$ terms, posting worst performance in seventeen years (FY02-FY18).

"This is barring FY09 when the market remained closed for several months and plunged 51 percent in dollar terms," the brokerage said.

Just to recall, the benchmark Index posted an average annual return of 11 percent in dollar terms, during the last ten years. The performance was far better during last twenty years, as average annual return during this period stood at impressive 21 percent in dollar terms.

During fiscal year 2017-18, average 84 million shares a day, valuing $57 million, were traded at KSE-100 index, compared to 138 million shares worth $105 million during FY17. Thus, the trading activity remained lowest since fiscal year 2010/11.

With record rupee devaluation of 16 percent during current fiscal year, foreigners were concerned regarding future dollar returns. These concerns aggravated at a time when Pakistan was facing external account weakness and general election was around the corner.

However, foreigners have been continuously selling in emerging markets during last twelve months.

Among the 25 MSCI emerging markets, Pakistan was the worst performing one during last twelve months.

According to MSCI, Pakistan posted s negative return of 33 percent, followed by Turkey and Philippines posting negative returns of 29 percent and 16 percent, respectively.

Peru and Russia remained the best performers by posting positive returns of 25 percent and 17 percent respectively.

Foreign selling remains the major risk for the market, until new government settles in and chalks out a clear road map to bring back economic stability.

Sherman Securities warned that investors should remain cautious on stocks having a major foreign shareholding.