Karachi:Sagging market volumes and outperformance of good equities
According to Standard Capital Securities, barring few days, Pakistan market remained devoid of volumes for a long time. Since Jan 2009, only ‘genuine’ volumes came from either institutional or few foreign players. Volumes from retail largely remained scattered or pliant to few opportunities that existed in the market. Since Jan 2009, just after infamous market freeze of Aug 2008, few good equities provided opportunity for capital gains since they were genuinely embracing earnings and dividend growth. Few examples which could be quoted here include Fauji Bin Qasim (FFBL), Fauji Fertilizer (FFC), Oil & Gas Develop. (OGDC), Pak. Oil (POL) Lotte‐Pta (LOTPTA) etc.
*3‐year out‐performance (Jan 2, 2009 – Nov 16, 2011)
|FFBL outperformed by||484%||LUCK||186%|
Despite above gains in certain scripts, market continued to show sluggish volumes mainly due to host of issues such as sagging economic indicators, government apathy on pressing issues such as lack of clarity on Capital Gains Tax, political uncertainty to name a few. It could be safely said that government indifference on instituting reform based agenda sent negative signals to most of the potential investors such as those who wanted to invest in capacity expansions, power projects etc. This reason alone can be cited as lack of ‘earnings growth’ performance of most of the companies enlisted at KSE. Even though many FMCG companies capitalized on price inflation and continued to pass on affect to end users. Moreover, big‐5 commercial banks capitalized on high interest rates mainly on their existing loan books since business conditions in Pakistan suffered. Government on the other hand shift the blame of ineptness to volatile situation on western borders where US forces are entangled with insurgents opposing existing Kabul based government. Pakistan is receiving ‘spill over’ impact of security problem from western borders which is also hurting investor confidence. But again government is still to be blamed for lack of ‘activity’ and a reason Pakistan equities continued to trade at discounted PE i.e. 6x – 8x most of the time wherein few equities mentioned above outperformed. Another fear that gripped market participants for nearly 3‐years include risk of ‘binge selling’ of certain scripts such as high weighted OGDC by few big foreign investors that could have choked Pakistan market. Foreign investors could react to situations such as political uncertainty in Pakistan or problems with debt ridden world economies. In 2011, Pakistani markets remained lacklustre due to external events such as US debt crisis and snowball effect of Greece default. Only fertilizer sector scripts such FFC, FFBL, FATIMA outperformed based on ‘unchecked price increase formula’.
Last but not the least, good ‘earnings growth’ companies outperformed index in a big way thus defeated ‘shrinking volume syndrome’.