With abnormally low volumes and uncertainties on the local political front, there is a growing concern amongst investors investing in Pakistan stock about trend of foreign selling. Investors’ concern, analysts believe, had turned grimmer especially after huge selling in emerging and other markets during the month of November. Local investors, they said, seemed cautious despite the fact that local stock market was now trading at FY12E PE of 6.1x with an average dividend yield of 10 per cent. Analysts said foreigners with 29 per cent market shares in the free float of Karachi exchange were playing a key role.
“Currently their shares are worth $2.6 billion,” said Farhan Mahmood of Topline Securities. The analyst said peak holding of offshore investors was $5.1 billion, 27 per cent of free float, in April 2008 and the lowest was $1 billion, accounting for 17 per cent of free float, in March 2009. With prolonged European debt crisis, he said, MSCI Asian emerging markets (ex China and Malaysia) saw net outflow of $7.5 billion in the month of November as investors’ fear a possible slowdown in global economy and exports by emerging markets to European Union. During the previous month, Farhan said, the best performing Asian markets of 2010 and the darling of foreign funds, namely India and Thailand, had also seen a net selling of $0.8 billion and $0.4 billion by the offshore investors where other Asian emerging markets, like Taiwan and Korea, recorded selling of $1.8 billion and $3 billion, respectively. With huge outflow in emerging markets, benchmark MSCI EM index, which tracks 21 emerging economies, had posted a negative return of 19.4 per cent in 2011YTD, the analyst said.
He said out of 21 markets in MSCI EM index, Egypt remained the worst market with negative 43 per cent return followed by India with negative return of 30 per cent. “Thus with huge selling in last couple of weeks, emerging markets are trading at one-year forward PE of 9.2x which is less than the four-year average multiple of 12.2x,” the analyst said citing data compiled by Bloomberg. Compared to huge selling last month, he said, Pakistan saw net outflow of $4.2 million in the month of November with year-to-date (YTD) net selling of $103 million in 2011 that included $68 million selling in Hubco. Interestingly, MSCI Pakistan with negative return of 13.3 per cent return during 2011YTD was so far the best performing market in MSCI Asian Frontier markets beating other markets with a handsome margin, Farhan said. However, he said, this was posing a concern amongst local investors that Pakistan market might de-rate as it was now trading at 35 per cent discount to emerging markets on earnings multiples compared to last 10 years average of 40 per cent.