KARACHI: Pakistan Stock Exchange (PSX), which was under-performing by 15.5 % in the first-half of 2020, has shown a robust recovery in its second-half, as the benchmark index recovered by 26.9 % in Pak rupee and 33.1 % in US dollar.
From January 1 to December 31, 2020, the KSE-100 Index gained 7.5 % or 3.6 % in US dollars, closing at 43,755.38 points.
Initially, the equities investors were panicked due to the coronavirus pandemic and the government’s lockdown policies, but after August this year the investors jumped into the stock market and the KSE-100 index started moving up slightly.
According to the Topline Brokerage house, “the return in USD terms during 2020 is better than -1.8 % of 2019, however, it lower than the last ten year average of 10 %.”
Giving the outlook for the 2021, the Topline Brokerage firm said, “The KSE-100 Index may touch 52,500 points mark due to strong corporate earnings growth along with rerating.”
The next year could be better if the federal government could control COVID-19 and renegotiate with the International Monetary Fund (IMF), alongside relaxation in border tension and political activities of the opposition parties, it further claimed in its report.
Pakistani stocks underperformed in MSCI Emerging Market and MSCI World indices. However, against MSCI Frontier Market, PSX outperformed as MSCI FM declined by 4 %.
During 2020, Pak Equities’ gain of 7.3 % was also lower than Gold and PIBs return of 28 % and 17 %, respectively.
Activity at PSX increased significantly due to rally in mid caps led by local investors. Traded volume and value in 2020 was 328 million shares per day and Rs 12 billion (US$75 million) per day, respectively.
According to AKD Securities, the benchmark KSE-100 is scaling new heights with a calendar year 2021 index target of 56,000 mark. But the analyst was doubtful that the market may touch 56,000 points mark owing to the political uncertainty in the country.
While uncertainties, both on the social and economic front, are unlikely to placate immediately, the advent of vaccines, at least on the global stage, should result in a narrative change towards optimism, the analyst claimed.
“The KSE-100 has already ratcheted a 61% gain since its low in May 2020 – a direct consequence of GoP policy response where CY21 will witness much the same. This is likely to be particularly true for the latter half of the year where eyeing elections in just 2 years’ time, policy shift will be a balancing act between growth and consolidation.”
Key events to watch out for in CY21 include Pakistan’s return to the IMF, subsequent tariff adjustments, and interest rate alignment where the analyst estimates the tightening phase to initiate by May 2021 (cumulative 150 basis points in calendar year 2021). The analyst expects a broad based uptrend, with blue chips taking center stage. Top picks include HBL, MEBL and MCB in Banks; OGDC in E&P; LUCK and MLCF in Cements; HUBC in Power; PSO in OMCs; NML in Textiles, and INDU in Autos.
“Construction sector package, export refunds, industrial support package and power sector MoUs are just some of the key achievements of the government, where we expect broad based business support to continue into 2021,” the analyst said.
A possible Senate majority may provide further impetus to the required legislation, while a possible inclusion into the FATF’s white list, if successful, would unlock valuations within the PSX.
Pakistan already trades at undemanding CY21 P/E of 6.5x with an impressive D/Y of 7.5%.
Despite Pakistan embarking on an economic recovery path, the analyst at AKD Securities believes that “GDP growth may remain modest at 2.4 % in fiscal year 2020-21.” He further said that IMF program’s restart will likely focus on reigning in fiscal spend as well carrying out energy reforms, wherein we foresee a 10-20 % gas/electricity adjustment in March 2021, taking inflation to 10.84 % by June 2021.
Policy rate may be increased by 150bps over the next 12-18 months, he claimed. At the same time, near term fiscal policy response will likely comprise a mix of additional taxation measures and spending cuts in the range of 0.8-1% of GDP.
