Dealings in stock/shares, mutual funds, silver and REITs offer good return
Interview with Mr Nouman Zaheer – Director, Investment Multiline Securities (Private) Limited
Mr Nouman Zaheer is currently serving as the Director Investment Multiline Securities (Private) Limited. He has got 24 years of experience in capital market (both primary and secondary market activities), mutual fund, equity brokerage, block deals & corporate finance. Before joining Multiline Securities in 2016, he had served in equity departments of leading brokerage houses such as Kausar Abbas Bhiyani Securities, Arif Habib Group and Sunrise Capital.
The basic function of the positions he held in the above-mentioned organizations was to do full range top to bottom research on factors that affect the capital market of Pakistan in general and different sectors and companies in particular.
PAGE: Where should people invest their money as a buffer?
Nouman Zaheer: Inflationary pressures are the more technical reason that force people to invest. Inflation is an economic concept that explains why the price of goods and services increases over time. In Pakistan, the government tries to control and manipulate inflation. In fact, they think some inflation (6-8%) is good for the economy. Many people would disagree, especially since many wages haven’t kept up with inflation over last few years, but that’s how it is.
As the government manipulates the money supply and interest rates to control the inflation rate, inflation will continue to occur, and prices will continue to rise. Similarly, dollars are worth less and prices keep going up. By refusing to invest in something that at least keeps pace with inflation, they are actually losing money. The purchasing power of their money is decreasing, as is their true wealth. Investing has historically provided a way to outpace inflation and grow wealth. Although inflation has averaged close 8% per year over the last 10 years, some investments have returned far more than that. In fact, the aggregate Pakistan Stock Exchange (KSE-100 Index) has returned close to 20% per year, on average, over the last two decades (Dec 1998 closing index was below 1000 current index in Dec 2018 hovering around 38000).
As stated above, stocks are a good investment and have historically provided high returns for investors. Stocks represent actual ownership of a publicly traded company, and the stock owner (investor) is entitled to a share of company profits. So by investing in stocks, you are providing the money necessary for companies grow, expand, and create profits to eventually give back to you. The stock market has risen roughly about 38 times since 1998 in Pakistan, which means there are far more profitable months than bad months.
However stocks are not without risk. The stock market has plummeted many times throughout history, and it will almost surely do it again. Protecting against unlucky market events is called “hedging” and is a common practice among investors. The most widespread way of hedging is using negatively correlated assets and options. For example, if a company’s revenue and share price are strongly dependent on foreign trade and exchange rates, one can hedge the investment in stocks of said company by trading forex options based on the currencies involved.
Bonds are much different. They represent debt. A company issues bonds to raise money as well, but the bond represents outstanding debt that must be paid. So the investor lends money and purchases a bond, and the company is in debt to the investor. The company must pay the investor back at a set date, along with periodic interest payments to reward the investor for loaning the funds and accepting risk. Bonds are less risky than stocks and have historically provided lower returns. Older individuals tend to favor bonds more than young investors because of the decreased risk and guaranteed income provided by the interest payments made by the issuing company. However, bond prices are inversely related to changes in interest rates. When interest rates rise, bond prices fall, and vice versa.
Real estate is another viable investment option. Historically, real estate prices have risen more than the rate of inflation. In addition most people make their money in long term rentals or fixing and flipping. With a little knowledge and hustle, real estate can provide excellent returns.
PAGE: What kind of benefits do the mutual funds offer to the individual investors?
Nouman Zaheer: Investing allows us to set aside money for specific goals, while often providing tax benefits. A perfect example is saving for retirement through mutual funds. If you choose to set aside money from your current paycheck to fund retirement account, the government won’t tax you on that money until many years down the road when it is withdrawn for retirement. This money is said to be tax deferred because it is not taxed in the year it is earned, providing a temporary tax break and tax free growth until withdrawal. There are numerous other tax benefits related to investing. Many pertain to retirement accounts, but not all.
There are also lower tax rates for the earnings on certain asset classes, most commonly stocks and real estate. These are known as long term capital gains, and they provide another incentive to invest instead of consume. By saving and investing, it is possible to earn enough passive investment income to pay for all living expenses. Some might call that milestone financial freedom. At that point, you can choose to pursue whatever career, job, or hobby you desire.
PAGE: How would you comment on the current state of the Pakistan Stock Exchange?
Nouman Zaheer: Equities trading at Pakistan Stock Exchange currently are very cheap. Due to political stability one can also expect increase in Initial Public Offers and privatization transaction to take place at PSX during 2019. As reflected from Pakistan Stock Exchange’s KSE-100 Index is trading below its decade average PE multiple of 10 times and is currently offering investors a 2019 PE multiple of 7.5 times. These levels have not been seen since long. It has been forecast that for the year 2019 KSE-100 Index estimated earnings growth is likely to beat a 5-year high of 15% for 2019. Oil Exploration & Production (E&P) sector is likely to record +36% growth followed by Commercial Banks with forecasted growth of 32% and Fertilizers sector to report 20% growth for the year 2019. Oil Exploration & Production sector expected to benefit from a higher PKR/USD parity (PKR 147/USD by end Jun’19; +21% YoY) and stable oil prices.
Banking sector earnings are expected to be driven by the impact of 425bps hike in interest rates during CY18. Fertilizer sector earnings growth should benefit from better pricing. Investor sentiments are expected to be bullish after reports of likely funds from IMF and friendly countries including China, UAE and Saudi Arabia. This will help address Pakistan economic concerns and enhance investor confidence. Current Account Deficit expected to be reducing below US$1 billion monthly from Jan’19 onwards. As a result the deficit for FY19 is likely to less than US$10 billion. I also anticipates a stable outlook for Pak rupee in FY19, following several rounds of devaluation in 2018. Total return for our KSE-100 Index is expected to be 20%, for the top sectors the return is projected to be in the range of 30-40%.
PAGE: Your views on long and short term investment opportunities in Pakistan:
Nouman Zaheer: The Pakistani economy is continuously evolving and it is very difficult for a family to survive with a single income source. Given the current economic scenarios, apart from investing in Pakistani Stock Market (PSX) the only other prudent investment is to invest in the real estate industry of Pakistan that remains firm in any condition. One requires some basic knowledge for making profits from investment opportunities in Pakistan. I will try to explain the key aspects of real estate investment.
Below are the key property types to consider for investing your money and expecting safe, risk-free, and sustainable income stream. The first on our list of real estate investment opportunities in Pakistan is the retail shops. The reason for investing in retail shops is that the demand is high and you’ll not have to look for tenants for long. Usually, the retail shops are categories in 3 different types according to their space. The smallest shop offers around 100-500 square feet (which is between 0.5 to 1.8 marla). The medium size that a retail shop can offer is between 500-3000 square feet and similarly the largest space it can offer goes beyond the 3000 square feet. You can invest around 10-20 lacs and expect a sustainable income stream off your investment in a retail shop. Since the new businesses are commencing their operations in different cities of Pakistan, you can also secure your capital by investing in a commercial space.
You can rent out the floors to different companies that are in search of a nice accommodation to operate from. The rent range depends upon the condition of the building and the interest rate is between 6%-12 percent so you can expect a quick ROI on your investment if you go for office space instead of residential premise. The high demand in office locations is one of the reasons that we recommend them in our list of investment opportunities in Pakistan.
The food and hotel industry is one of those businesses that have kept their place even in the worst phase of the economy. If you have excess amount of money (ranging between 1-3 crore), you should consider purchasing a property that is ideal for opening a restaurant or a franchise of a famous hotel. The hospitality industry holds significant value with respect to safest investment opportunities in Pakistan due to the interest of Pakistani community in travelling and exploration. If you don’t have enough knowledge to run this business, you can partner with an already established hotel, restaurant or food house and enjoy the profits.
Conservative investor who wants the investment should be safe and also the best way to generate a good profit, for that investor. My opinion in Pakistan the best and safe way to invest is the investment in gold.
It is necessary for everyone to invest in anything they can or their reach goes to. If we consider Pakistan, the majority of people living here cannot afford investments of huge amounts. But the thing which is necessary is that everyone should invest in anything which would be helpful for them in the future. As the situation of the country is going worse day by day with the prizes of basic needs growing higher every day and lack of employment, in such situation to get rid of poverty one only has the way to invest even little.
Now to start investment one should have a clear goal with an excellent plan. The one who is going to start it should have clear plan of making at least the double profit of which he has invested, as it costs money and time both. You should set a goal of how much you should have and in what time and also the reason why are you investing should be clear. As now you are clear of all the plans and goals, the next target is to see what the best and safest place to invest is. However investment of a large capital can give more benefit, but as for low class people they have also other options too.
Many great investors do invest in more than one place. So it would be great for a low class person to invest in stock/shares, mutual funds, gold or silver or in REITs. As the value of gold and dollar in the international market are both increasing on a fast track so by these means one can generate a good profit in a minimum period of time. Even if one invests with an amount of 15 to 20 thousands, it may at least give a good profit.