ENVIABLE PAST UNCERTAIN FUTURE

WHATEVER HAS BEEN ACHIEVED IS THE OUTCOME OF INDIVIDUAL EFFORTS AS GOVERNMENT POLICIES REMAIN HOSTILE

SHABBIR H. KAZMI
(feedback@pgeconomist.com)

Oct 22 - 28, 20
12

Despite ongoing political uncertainties, precarious law and order situation and rating downgrade by Moody's Pakistan emerged as the best performing Asian market in July 2012 as measured by MSCI Indices. The was attributed to better foreign inflows, improving Pak-US relations and easing inflation that helped Pakistan equities to outperform Asian Emerging and Frontier markets tracked by MSCI.

With continued headwinds in the Euro zone and uncertain global economic growth, all leading MSCI Indices remained almost flat during the month. MSCI World posted 1.2% return while MSCI Emerging and MSCI Frontier markets posted a return of 1.6% and 0.9% respectively. As against this Pakistan market outperformed all the regional markets. Amongst 12 Asian countries tracked by MSCI, Pakistan posted highest US dollar return of 5.6% beating all other regional markets that posted a return ranging from negative 9% to positive 4%.

The local benchmark KSE 100 Index was up 5.6% (US$5.6%). Pakistan's performance relative to other Asian Frontier market was far better with all posting negative return. Sir Lanka, Vietnam and Bangladesh posted a negative return of 0.4%, 2.0% and 8.9%respectively. India and China, the two leading markets posting negative return of 1.1% and 4.4% return, respectively.

During Jan-Sep2012 Pakistan emerged the second best performing market in Asia while it is top performing in Asian Frontier Markets. During the year, the benchmark index posted a gain of 22% in dollar terms only to be beaten by Philippines that posted a return of 27%. Compared to foreign net selling of US$109 million (US$40 million excluding Hubco) during June 2012, foreigners in Pakistan turned net buyers of US$30 million (gross buy US$64 million, gross sell US$33 million) during the month. During nine months foreigners have bought US$540 million worth of shares while sold US$541 million value of shares, thus resulting in net selling of US$1.00 million. However, if one excludes Hubco deal, then foreigners were net buyers of US$68 million.

To be more precise The KSE-100 Index closed at end 1QFY13 on 15,445 points, up a strong 12%QoQ, bringing CYTD gains to 36% which makes Pakistan one of the best performing markets in the world. Although Banks and Chemicals remained under pressure, the Index was propelled by strong gains across Telecoms, Cements, Textiles, Food Producers and heavyweight E&P. In addition to strong results, bullish sentiment emanated from monetary easing amidst single-digit CPI and improved US-Pakistan relations. Net FIPI for the quarter came in at USS$93 million, taking CYTD net inflow to US$64 million. Average daily volumes in 1QFY13 clocked in at 140 million shares (All Share), down 34%QoQ partly due to Ramadan.

In addition to positive sector-specific developments (particularly for Telecoms), strong Index gains during the quarter were due to monetary easing and improved US-Pakistan relations, underpinned by release of CSF dues. Corporate results continued to surprise, beating estimates. Political noise remained relatively subdued despite former PM Gilani's disqualification in late Juní12. Within main board sectors, top gainers during the quarter were Fixed Line Telecom, Cements and Textiles. Underperforming sectors included Banks and Chemicals. Index heavyweight Oil & Gas returned 13%QoQ in 1QFY13 amidst release of the new Petroleum Policy but has still underperformed the Index by 15%CYTD.

Though, the performance is enviable experts seem clearly divided into two groups those hoping the upward move will continue and those who fear soon the market will lose the steam. Both the groups have the points to substantiate their beliefs. While every Pakistani wish the economic managers succeed in overcoming the looming crises, the outlook remains uncertain. The country continues to suffer from various crises and their intensity is likely to grow. These include: 1) budget deficit crisis, 2) balance of payment crisis but 3) the biggest stumbling block is confidence crisis.

Many countries face crises but their governments and economic managers make concerted efforts to pull the country out of these crises. As against this, in Pakistan the feeling prevails over that the economic managers are fully aware of the problems and even the remedies but don't have the guts to take difficult decisions or the political will. It seems they want the crises to linger on so that people don't get time to evaluate their performance. Whatever positives have been achieved is the outcome of the efforts of individuals because government policies don't provide any impetus. The bottom line is clear if the policies fail to boost economic activities, profitability of the listed companies will remain subdued and soon the index will start sliding down

The biggest evidence of the bad policies is that very few IPOs have been made since the incumbent government has come into power. Similarly, privatization program faces grinding halt because government was not able to complete any strategic transaction and even offer shares of the any state owned enterprise (SoE) to the general public. The IPOs virtually dried because sponsors know they could neither get uninterrupted supply of electricity and gas, law and order situation remains precarious and the biggest threat is growing booty culture.

In the past only a few groups were involved in booty collection but now it seems that there is no rule of law. One of the latest examples is fire at a garment factory in Karachi. There is consensus that it was not an accident but a deliberate attempt. The booty collectors wanted to terrorize the owners but fire got out of control. Since the unit was exporting its products to developed countries it had achieved various certifications, including firefighting facilities. The deaths were due to trapping of workers as exits could not be opened in time.

There is growing demand that the owners should be punished for not making appropriate arrangements for the evacuation of workers in case on any emergency. If they have to be punished high officials of various departments should also be punished who kept their eyes closed and had never realized that violation of rules could cause such a trauma. Violation of rules has become common because the penalties are paltry and often never imposed.