JS Securities Limited – JS Research Beep

Karachi, December 29, 2017 (PPI-OT): 2017: PSX’s worst year since 2008

The outgoing year was one of the most stressful period for stock market investors in Pakistan, as the benchmark KSE-100 index plunged by 15% (US dollar terms: -20%) to close at 40,471, compared to average annual return of 35% during the previous five years. To add perspective, the KSE-100 index is down 24% from its intra-day peak of 53,127 recorded on May 25, 2017 and it is the worst year in terms of returns since 2008 (KSE-100 index was down 58%).

The value of the local bourse closed at US$78bn, down 15% from last year’s closing. Interestingly, the value is just 12% higher compared to 2007 closing as compared to an increase of 188% in KSE-100 index during this period.

The average daily volumes also suffered as a result with average daily turnover declining to 236mn shares/day (-16% YoY), however average traded value marginally improved to US$115mn/day (+3% YoY).

Amongst the key sectors, (1) Cements, (2) Power Generation and (3) Commercial Banks were the major laggards while (1) Oil and Gas Exploration, (2) Textile Composites and (3) Automobile Assemblers were outperformers in the market.

The decline at the PSX started with expected MSCI-related inflows not materializing on MSCI rebalancing day, i.e. May 31, 2017 (net outflow of US$82mn). All this while, political turmoil due to the disqualification of then Prime Minister, Mr. Nawaz Sharif, and post disqualification-related events along with concerns over economy – particularly on the external account – continued to eat into investors’ sentiments.

Foreign selling too was instrumental in market decline, as foreigners’ net selling clocked in at US$496mn in 2017 (excluding today’s session). Foreigners now have an estimated shareholding of ~US$6.5bn at the local bourse, which is ~33% of the free float market capitalization and ~9% of the total market capitalization.

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