Though the country’s fragile economy is hit hard by a fresh spate of protest demonstrations in almost all major cities, economic observers expect that the booming stocks market may peak to an all time high of 19,500 points in the months ahead.
“The equity market continues its rising trend with another milestone is coming close as Pakistan market is about to touch 18,000 mark,” said the analysts at Topline Research in a report issued Tuesday.
On Oct 9 last year, they recalled, when the benchmark Index was at 15,688 points, they in a report on country’s politics had targeted the Index to reach the 18,000 mark in the run up to elections by May 2013. “The index has now reached close to 18,000 mark but two months ahead of what we thought,” they said.
Many investors, the analysts said, were now curious to know the future direction of market beyond 18,000 mark in light of worsening security conditions and upcoming transfer of power at the domestic political scene. “We maintain our Index target of 19,500 points without re-rating as mentioned in our note titled ‘Pakistan Investment Strategy 2013’ issued on Dec 12, 2012,” they added.
The target, they said, was based on 15% discount to last 10 year average PE of 8.2x as this discount made sense considering economic slowdown, security concerns, circular debt and external account vulnerabilities.
About the impact of ensuing political developments on the stocks market of the electioneering country, the market observers said: “In case the transfer of power, that is selection of caretaker PM is through consensus and there is no uncertainty, we expect the market to continue to perform well, otherwise some correction expected”.
About the fate of rupee, the analysts said, last week the central bank had to take some strict measures to control the falling rupee. However, the fact of the matter was that there were hardly any dollar inflows that could stop the declining foreign exchange reserves.
The country’s dollar reserves, in other words the SBP’s reserves, had fallen to 50-month low of $8.5 billion causing the dollar to appreciate by 8 percent in last one year and 0.4 percent in last one month against the local currency.
“We believe if deal with IMF or any arrangement of decent inflow is not done, the local currency can fall another 5 percent by June 2013,” he warned adding that an abrupt depreciation of local currency was negative for equities.
On foreign inflows, they said in line with trend seen in other markets, the foreigners had bought shares worth $ 117 million and sold $ 89 million at the Karachi bourse in six weeks of 2013 so far resulting in net buying of $ 28 million. This love for emerging and frontier markets along with pre-election buying by foreigners would be important determinant of market direction in coming few months.
“In case the elections are held on time as per the constitution and there is no major disruption towards the political transition, then the foreign flows would remain decent,” said the analysts.
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