Elixir Securities Limited – Pakistan Market Wrap

Karachi, December 29, 2017 (PPI-OT): Farewell 2017 – A Tale of Two Halves for Pakistan Equities

The performance of Pakistan equities in 2017 has been a tale of two halves really. The first of which saw market extending gains on MSCI-EM inclusion optimism that allowed benchmark KSE100 Index to peak at 52,876 points on May 24 (+10.9% USD based return). During the second half, markets shifted their focus to political chaos (disqualification of PM Nawaz and Finance Minister Ishaq Dar), aggravating macros (worsening Current Account) and stock-specific let-downs (HBL penalty, KAPCO deal fallout, NBP pension issue and change in government policy towards Furnace Oil based power generation). Resultantly, KSE100 Index troughed at 37,919 points on Dec 19 (-30.4% USD based return from May 24 until Dec 19, 2017).

That said, the last ten days have seen improving sentiments as successful passing of delimitation bill put concerns over timely elections at rest. Moreover, latest measures such as State Bank allowing Pak Rupee to devalue and Government appointing new Advisor to PM on Finance with goals of broadening tax base, clearing payments backlog for exporters and offering amnesty scheme to bring undocumented offshore wealth into the country – this somewhat revived investor confidence, helping KSE100 Index to recover 6.7% to 40,471 (-19.6% USD based return for 2017 vs MSCI EM return of ~34%).

Highlights for 2017:

Market Cap down by 20% to ~USD77bn

Average Daily Turnover in 2017 was higher by 3% to USD114mn

Average Daily Traded Volume was lower by 16% to 234mn shares

FII selling of over USD500mn with Cements (35% of total outflow) taking the biggest hit followed by Banks (20% of total outflow)

FII participation increased to 11.5% vs 8.8% last year

Sectors performance based on Market Capitalization: Cements -41%, Refineries -35%, Pharma -29%, Power -23%, Banks -20%, Ferts -11%, OMCs -11%, E and Ps +11%

Rupee devaluation by ~6% to PKR110.7/USD

USD2.5bn financing raised through Sukuk and Eurobond issuance at attractive yields of 5.625% and 6.875%, respectively

Major IPOs during the year:

1. Pakistan Stock Exchange (USD43mn), following majority stake divestment to Chinese Consortium of Exchanges (USD85mn)

2. Roshan Packages (USD27mn)

3. Ittefaq Founderies (USD12mn)

Elixir Research team will be releasing a detailed Strategy Piece for 2018 on January 1st, highlighting economic projections, market outlook, expectations and opportunities. We would like to wish you a very Happy New Year 2018.

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