KSE-100: Riding on the positives despite all odds! – InvestCap Research
• KSE-100 yields 49% YoY in CY12
• KSE outperforms regional returns, positioned in the top-5 slot
• Outlook: Positive with Dec-13 KSE-100 Index target of 19,500pts
We present the performance of KSE-100 index coupled with performance comparison with regional equities. Outlook on the market and recommendations are also included..
KSE-100 yields 49%YoY in CY12
Pakistan benchmark index, KSE-100 turned northwards despite concerns highlighted by Moody’s and the IMF regarding the country’s macro economic and on-going political situation. Investor sentiment was boosted by the better-than-expected corporate results along with rising prices (oil, cement, auto and fertilizer) which in turn benefitted the index heavyweight companies. Moreover, better cement company margins and increase in the exports of textile sector (mainly spinning and weaving) fueled the KSE-100 index further.
Cumulatively, KSE-100’s returns during CY12 went up to double-digit at 49%YoY (37%YoY in USD terms).
The market bid adieu to the said month in the grandest of styles, touching its all time high level of ~17,032pts, however, closed at 16,905pts. The revitalized interest of the investors, was evident by the mammoth jump of ~119%YoY in market volumes averaging to 173mn shares (volumes were more tilted towards second and third-tier stocks with low denomination i.e. below Rs50/sh in CY12).
The healthy rally during the said period was also largely contingent to the materialization of the Ordinance with respect to the new CGT regime coupled with the deferment of the clause whereby investors were required to provide documentation for their source of income. Moreover, another primary reason for such improved performance of equities has been the cut in the policy rate by the central bank during the period.
KSE outperforms regional returns, positioned in the top-5 slot
Interestingly, with persistently climbing index, KSE regained its lost identity amongst the regional outperforming equities in CY12. From a global perspective, Pak equities surpassed the global average return of 23%YoY achieving a return of 37%YoY in the said period (see table alongside). During CY12, regional as well as world equities rallied on subsiding in debt default, partly due to fresh liquidity injected in the US and Eurozone economies.
The KSE-100 not only outperformed its benchmark MSCI Frontier Market index with a high margin (5% return registered by MSCI), but also the Emerging Markets (15%) as well as MSCI World index (12%). As far as foreign equity flows go, Pakistan equities have now been gaining traction in the Asia Pacific region after marked improvement in liquidity and volumes. Net inflows of USD125mn were received during CY12, against a whopping USD51.4bn of inflows into the region during the aforementioned period.
Outlook: Positive with Dec-13 KSE-100 Index target of 19,500pts
With the beginning of the New Year, market momentum is expected to continue as better earnings and payouts by E&P, Fertilizer, IPPs, Textile, Cement and Banks help the index for further positive move.
Moreover, cooling down in the Pak-US relations, easing monetary policy and positive (see table alongside) hopes from the upcoming elections will all remain the major positive factors for the market. We maintain our positive long-term stance on the market with Dec-13 index target at 19,500pts level.