Manager Research, PAGE
Jan 07 - 13, 2008

KSE-100 posted a return of 40% in CY07, 6th consecutive year of bull-run in Pakistan. Market's 40% return in CY07 was, however was lower than previous 5-year (2002-05) average of 55%. In 2007, market recorded its all time high at 14,815 in December, 2007.

Nonetheless, the entire year was marred by the country-wide protests since March 09, when the Supreme Court Chief Justice Iftikhar Chaudhry was removed from the office along with the unprecedented number of suicide attacks, country's stock market well absorbed these shocks and continued its upward journey by breaching a number of psychological barriers and setting new records. Pakistan also fell prey to emergency rule and had an immediate adverse impact on investor sentiments. The first trading day after the imposition of emergency on November 5 saw the KSE-100 Index drop 636 points, at the time, the largest single day decline on closing basis in the history of the KSE.

Such an impressive performance in the stock markets during the past six years has been driven by a number of factors including:

Continuous improvement in the country's economic fundamentals.

Regionally cheap valuation driving foreign interest in Pakistan's stock market.

Large-scale merger and acquisition in the banking, telecom and other sectors of the economy.

Successful GDR offerings and speedy privatization process.

Allowing foreign investors to repatriate their funds without any restriction.

Apart from that, the inflow of liquidity from foreign funds played a major role in the rally as there was around US$459m net inflow as per SCRA figures during September to October. Also, institutional buying interest in key sectors such as oil due to international crude oil prices touching US$90 a barrel and cement because of robust sales during 1QFY08 on the back of strong export sales.

The total amount offered through Initial Public Offerings in 2007 stood at Rs15.7bn versus just Rs1.9bn previously. The hefty jump in IPO size during 2007 was due to government offerings of Habib Bank Limited worth Rs12.2bn inclusive of green-shoe.

The trend of listing of Term Finance Certificates on Karachi Stock Exchange has reversed during the last couple of year. The highest number of TFCs listed on KSE was in the year 2002 while the highest amount listed on KSE was in the year 2005 when TFCs worth PKR10.9bn were listed. The numbers has declined since then. Only 3 were listed on the bourse in 2006 worth PKR3.4bn while in 2007 5 TFC's were issued worth PKR7.75bn.

In contrast to the past, banks mainly drove the market with 41% return in 2007 backed by cement sector with 47% return. On the other hand, fertilizer and oil marketing companies (OMCs) under performed the market with 38% and 23% return in the year respectively. Similarly, E&P sector had disappointed performance with a return of just 7%.

AICL was the best performing scrip giving a return of 140% over the year, with 138% in the form of capital appreciation. The major reason for the rise was due to better expected earnings for 2007 as a result of one off significant capital gains to be booked this year, as well as expansion of insurance business. LUCK provided a return of 97%, mainly backed by price appreciation. These high returns were a consequence of improved share in the export market of cement, coupled with a low base effect of last year. MCB's stock rose by 63%, along with a dividends and bonus giving a return of 27% during the year.

The performance of the market was at par when compared with regional and international markets. Regionally, Shanghai Composite stood out with a return of 97% followed by Indonesia and India at 50% 47% respectively. While the markets in the Middle Eastern region also appreciated quite well. Oman gave investors a return of 61% followed by Abu Dhabi and Dubai market at 51.74% and 43.72% respectively.

The share market opened the New Year account on a terribly bearish note as post-Benazir Bhutto assassination panic selling again manifested itself in a bigger way taking away another 400 points from the index amid an uncertain political and economic outlook and divergent opinions about the holding of elections. But unlike the last session of the year end, where the index lost over 600 points there were buyers at the dips, signaling that investors were inclined not to miss an attractive bait of capital gains at the current lows. The KSE 100-share index plunged by another 2.91% or 409.40 points at 13,666.43, the total loss during the last two sessions being 7.62% or 1,105.65 points, eroding a massive amount of Rs339bn from the market capital at Rs4trn.

The market is well poised towards growth and the policies of the past government have paved the way well for them. With the Election Commission of Pakistan having announced Feb 18, 2008 as the new election date we see investors once again regaining their confidence in the market. During that time buying activities should be done in attractive sectors at dips.