Historically, April has been an unsteady month as far as index returns are concerned, as the KSE-100’s historical return for April (during the last decade) averaged around 2.5 percent while KSE-100 yielded 2.1 percent (2.8 percent in US dollar terms) during April 2011. Market activity (in terms of average monthly volumes and value) was encouraging till 2009 during the month of April, before it had taken a downturn and headed to only 75 million shares against an average of 282 million shares until April 2009 (since April 2001).
In addition to such low average volumes during April 2011, total traded value also stood significantly lower at $36.5 million showing a massive decline of 33 percent in monthly terms. Such limted activity coupled with marginal return from equities during April with the commencement of Apr-Jun quarter should not be taken by surprise as the returns have mostly been negative historically during this quarter (one percent negative returns on average during this quarter against 17 percent, 3.4 percent and 5.6 percent during the first, second and third quarter, respectively).
The lower returns can be attributed to uncertainness of future prospects, as the budget related fears builds up and lower cash payouts announced during April for the January-March quarter results, said Khurram Schehzad at Investcapital. Though Pakistan equities performed below the standards set by the Asia Pacific average of 3.3 percent (KSE-100 returned 2.8 percent in dollar terms) in April 2011, the Standard & Poor’s (S&P) outlook change for the US and its mounting fiscal deficit seems to have triggered strong returns as foreign funds have once again plunged deeply into emerging and frontier markets. As a result, April 2011 has been quite a good month for most of the emerging as well as frontier markets (especially in the fast growing Asia Pacific region)
This can be observed by reviewing the latest foreign portfolio investments in the Asia Pacific region, which, until 1QCY11 (January-March 2011), was mostly in the negative ($3.7 billion in total). On the other hand, during April 2011 inflows solidified in quantum towards the Asia Pacific region and were so strong that the negative figures sustained in the entire first quarter were negated as it turned positive to $7.8 billion YTD (January to date), as $11.5 billion were poured into the region only in April 2011. This shows how money is attracted towards a destination of growth while at simultaneously balancing risks and not where subdued growth is realised with a relatively higher level of risk.
Despite heavy foreign inflows in the emerging Asia Pacific region during April 2011, Pakistani equities had only $45 million of net inflows year to date. Looking ahead, the recent outlook adjustment for the US alongside the Eurozone debt crises may prove to be a crucial factor in pushing capital further towards emerging as well as frontier markets. In this regard, Pakistan can be one of the attractive destinations as KSE-100 provides a better pay-receive deal in terms of higher dividend yield amongst regional peers while offering lowest price to earnings multiple amongst the Asia Pacific peers.
There has been a mixture of oil, power, banks and fertiliser scrips which outperformed the market during April 2011. Now, with the announced demise of the most wanted man on earth, Osama Bin Laden, it is also believed that inflows to Pakistan may increase in the medium-to-long run, he added. In the short term, KSE100 is expected to face a relatively turbulent period as budgetary fears loom.
However, despite the relentless rise in international oil prices (benefiting the oil and gas sector), the country’s external outflows have been well contained leading to a stable local currency which may attract more foreign inflows in the country in general and in the case of equities in particular. This, from a medium-to-long term viewpoint, is expected to provide impetus to Pakistan equities still trading at a huge discount of over 50 percent at key multiples amongst regional peers.
