Disenchanted by the performance in the current year–nine sessions now remaining to the end of the year– stock strategists have already started to plan for the year ahead.
Topline Securities Research believes that investors in Pakistan equities would keenly follow the foreign flows and political developments in 2012. “These two factors will remain major market movers next year while volumes are likely to remain dull,” say the analysts.
In the year 2011 to date, the Pakistan equities have yielded a negative return of 8 per cent (12 per cent in dollar terms).
Currently Pakistani stocks are trading at close to 3-year low valuation with price-to-earning (P/E) ratio of 5.1 times (5.8 times including OGDC). The dividend yield materialised at 11 per cent (9 per cent with OGDC) which was close to T-Bill yield. But for 2012, analysts expect the stock market to post a modest recovery with KSE-100 index to close at 13,000.
If that be true, the equity market would be giving out estimated gains (inclusive of dividend yield) of 18 per cent (12 per cent in dollar terms).
“We expect energy and fertiliser stocks to continue to perform in 2012 due to strong fundamentals while few banks may do well once the process of economic recovery begins,” say analysts. Yet it would be the foreigner who would have the major say in determining the direction of the market.
Analysts state that in spite of Pakistan being relatively resilient from fragile condition of the West, it cannot remain completely immune. With volumes plummeting to 10-year low at Rs3.6 billion ($42million) a day, the net selling of $118 million by foreigners, could be pointed out as major reason for stocks decline as local investors remained shy, shaken also by the various political issues being faced by the government. Foreign funds still hold Pakistani equity worth $2.4 billion (29 per cent of free float), which could be the major mover and shaker for the equity market in 2012.
“Thus we believe that prolonged global economic crisis, economic slowdown in Pakistan and strained Pakistan-US relations will force risk-averse foreign fund managers to trim their exposure at least in first half of 2012, thus keeping Pakistan market to trade at discount to its historical average price-to-earnings ratio of 8.0 times,” analyst said, adding that as Pakistan equity had shown relatively better performance compared to the regional peers in 2011 and its discount over other markets had shrunk, offshore fund managers may also be compelled to offload their position to rebalance their portfolio.
On the positive side, analysts peer to see the local political scene ahead. Could there be an early election? That and any sign of improvement in relationship with US, biggest foreign investor in Pakistan, might bring cheer to the market, analysts say, posting a possible hasty recovery.
Some analysts at other brokerages, however, do not see a political upheaval in the country as a stimulant for investors to accumulate stocks. But most stock pundits do admit that foreigner fund managers have their hands on the rudder and they could steer the market in either direction until the local investor sentiments starts to improve ( source http://www.dawn.com/ )
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