In 2011, Pakistan’s equities endured an uninspiring 2011 as the benchmark KSE-100 index contracted by 5.6 per cent while the average volumes plunged to their lowest in 13 years. Multiplicity of issues dented investor confidence throughout the year. JS Research report, titled “2012 en-route to recovery”, has pointed out this positive outlook on Friday.
Foreigners were leading bears selling equities worth $126 million. However, 2012 started on an encouraging note largely owing to changes promised in the CGT regime by the govt. We expect this positive momentum to withstand in 2012.
”We are anticipating a level of 13,800 by the year-end based on target prices of JS universe companies, expected earnings growth and local bourse’s discount to the region reducing to 40 per cent,” said the report. Furthermore, given the possibility of general elections this year, the question arises whether the market will sustain its uptrend or not. Looking back in history, the KSE-100 index during the last four election years has posted an average gain of 40 per cent. Apart from 2008 when the market declined by 58 per cent owing to severe economic downturn, the local bourse has provided a robust return ranging from 31 per cent to 112 per cent. We flag MCB, UBL, POL, PPL PSO, HUBC, ENGRO, FFC, LUCK and DGKC as potential out performers.
Even after three years into the IMF programme, Pakistan’s macro team is still implementing the reforms with a lag of 12 to 18 months. This has resulted into an incomplete IMF program, higher deficit and infrastructural bottlenecks. Although the government, thus far, has been unable to control the fiscal deficit however it has remained successful in containing the subsidies. Push from the electricity and tax reforms are much awaited, which will eventually provide a liquidity buffer to the private sector. Additionally, debt repayments (mainly IMF) look like a daunting task especially in the absence of FDIs and flows from the US government.
Liquidity led woes have already restrained the SBP to provide further relief in the policy rate despite lower growth, investment and slower inflation. Moving forward, macro lifeline is heavily dependent on the 3G/4G telecom auctions, reimbursement from USA under the coalition support and Kerry-Lugar arrangement, and lower global oil prices in our view. To conclude, despite mounting challenges, we believe the country is no where near the 2008 crisis; however, there are challenges, which remain to be resolved.
The topsy-turvy political journey of the ruling party (PPP) was confronted with awkward issues domestically and internationally. Issues’ pertaining to opposition’s resistance in implementing the non-populist economic reforms (e.g. pass through of subsidies and energy shortfalls) to tense relations with US because of counter- terrorism and geo-political issues proved an ordeal for the government.
