Equities yield staggering 52pc return

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KARACHI, June 29: For the investors in equities, it is time to celebrate. He who may have invested Rs10 million in the Pakistan stocks on July 1 of last year, would have additional Rs5.2 million in the kitty.


It marks a mouth-watering return of 52 per cent in a year unmatched by any other asset class. During the year, the benchmark KSE-100 index added staggering 7,204 points to settle at the dizzy height of 21,006 points on Friday, the last trading day of the year.


Yet, compared to a miniscule return of 0.5 per cent that investors were able to eke out from equities the earlier financial year, only the bold would have ventured into the equity market.


On hindsight, they could not have made a better decision to enrich themselves, for the comparable returns from some other assets class were on average 6 per cent on bank deposits, 10 per cent on National Saving Schemes; 12 per cent on T-Bills and around 15 per cent in real estate.


Gold — always the investment of choice lost its glitter during the year.


Over the last ten years, Pakistani stocks have yielded return of 28 per cent while going further back over the 20-year period, returns turn lower at 18 per cent.


The KSE gain of 52 per cent outperforms the entire Asia Pacific region where the average return happened to be on average 18.2pc in dollar terms. The closest to the Pakistani bourse was Thailand with gain of 39 per cent followed by Philippines at 33 per cent.


The investors in the market on the Dalal Street in Mumbai may be looking over the fence with envy as they received only 12 per cent.


So what brought such boon for investors in Pakistan stocks?


Market participants seem to agree that almost everything went well for the market in FY13. The smooth transition of power on the political front; huge cutoff of 500bps in policy rate by the country’s central bank over the previous two-years to a 7-year low at 9 per cent; massive growth in corporate earnings; the incoming government’s visible measures to overpower the energy sector circular debt menace and foreigners’ favourable stance on the country’s equity market were some of the major reasons.


“At present, foreign investors hold around $4 billion worth Pakistan equity, which works out to 30pc of the market free-float or 7pc of market capitalisation as per the State Bank of Pakistan statistics”, calculates Asad I. Siddiqui, analyst at brokerage Topline Securities.


He asserts that encouraged by the eventless transition of power from one to the other democratic government, overseas investors’ lapped up the Pakistan equities in the net sum of $567 million, excluding the Unilever Overseas buyback of local subsidiaries’ stock of $358 million. It represents sharp contrast to the net sale of $190 million worth shares, excluding Hubco block deal of $61m in FY12.


The analyst notes that the election euphoria gripped the investors’ interest, who looked for a favourable change for the economy. In the month of May (the event of elections), the investors, local and foreign, fell over each other to buy stocks, which carried the benchmark up by 15 per cent.


Market gurus admit that a significant feature of the outgoing financial year was the return of small investors, thrice bitten by the stock crisis in the last decade. On the basis of improving fundamentals, the penny worth laggards on the textile and cement sectors stirred to life, some after decades of hibernation.


Small investors and day traders made fortunes by quick entry and exit in low-priced stocks (termed second and third tier stocks) most tagged at below Re1. On any given day, more than half of the 10 top volume leaders happened to be those penny stocks.


The heavy volumes generated by small investors in such stocks was one of the major reasons that the year saw average daily volumes at the market jump to 200 million shares during FY13 compared to 129 million shares traded on average in a day the earlier year.

Courtesy:  Dawn

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