KARACHI: The benchmark KSE-100 index of Pakistan Stock Exchange (PSX) has posted 7.3 percent growth during the year 2020 as one day is still remaining to conclude the year.
Analysts at Topline Securities on Wednesday said that Pakistan benchmark KSE100 index gained 7.3 percent (USD: 3.6 percent) in 2020 (one trading session left). The return in USD terms during 2020 is better than -1.8 percent of 2019, however lower than the last ten year average of 10 percent.
“The year 2020 was a story of two halves for Pakistan equities as the first half witnessed a decline of 15.5 percent (USD: -22 percent), while a robust recovery was seen in the second half as the benchmark index recovered by 26.9 percent (USD 33.1 percent). Just like peers, PSX rallied 60.5 percent from its bottom on Mar 25, 2020.”
Interestingly, despite lower broader market return, few mid cap stocks have posted a billion normal returns (adjusted) namely TRG (up 270 percent), SYS (up 242 percent), PIOC (up 234 percent) and CEPB (up 200 percent).
Pakistan under performed MSCI Emerging Market and MSCI World indices. However, against MSCI Frontier Market, PSX outperformed as MSCI FM declined by 4 percent.
During 2020, Pak Equities gain of 7.3 percent was also lower than Gold and PIBs return of 28 percent and 17 percent, respectively.
Activity at PSX increased significantly, due to a rally in mid-caps led by local investors. Traded volume and value in 2020 was 328 million shares/day and Rs12 billion (US$75 million)/day, respectively.
The analysts said that KSE-100 may touch 52.5,000 mark in 2021 due to strong corporate earnings growth along with re-rating. Four key triggers to watch out for during 2021 will be (1) COVID-19, (2) IMF, (3) foreigners activity and (4) politics.
KSE-100 Index under performed its peers and global benchmarks during 2020.
The benchmark index posted a US Dollar return of 4 percent compared to MSCI Emerging Market return of 12 percent and MSCI Developed and World Market return of 13 percent.
However, PSX outperformed MSCI Frontier Markets as its value declined by 4 percent.
The benchmark index also under performed its peer countries with Bangladesh, India, Sri Lanka amongst top markets during 2020 (refer to below).
Overall traded volume (ready/cash) at PSX averaged at 328 million shares/day (+107 percent YoY) in 2020, highest after 15 years.
Similarly, traded value also increased to an average of Rs12 billion/day (or US$75 million/day), up 106 percent from 2019 and most after 12 years.
In the futures market, PSX volumes were also at a 15 year high of 101 million shares/ day. Similarly, traded value in futures is at a 12 year high of Rs4.7 billion/day (or US$29 million/day).
Most activity, in terms of average volumes, was witnessed in small and mid cap stocks like HASCOL (21 million shares/day), UNITY (20 million shares/day), TRG (16 million shares/day),MLCF (15 million shares/day) and KEL (13 million shares/day).
In value terms, the most activity was seen in TRG with an average value of Rs746 million/day, LUCK (Rs564 million/day), MLCF (Rs481 million/day), DGKC (Rs474 million/day), and PPL (Rs368 million/day).
Amongst market participants, share of individuals in total activity increased from 60 percent to 63 percent while foreigners share dropped from10 percent to 7 percent in 2020.
Settlement Ratio (UIN) during 2020 dropped to an average of 56.6 percent from 60.9 percent in 2019. Leverage to Market capitalization increased to 0.26 percent compared to 0.18 percent in 2019.
Foreigners continued to remain sellers to the tune of US$570 million, highest in more than a decade. Cumulative selling in the last six years has amounted to US$2.2 billion.
This non stop selling could be attributed to closure of few frontier market funds, under performance of Emerging and Frontier markets and negligible weight of PSX in MSCI Emerging Market
Highest foreign selling was witnessed in the Banking sector with a net outflow of US$176 million followed by E&Ps (US$125 million) and Cements (US$107 million).
Most of the selling in these sectors was absorbed by local insurance companies, and local individuals.
According to SBP data, widely followed, foreign portfolio investment stands at US$3.0 billion (high of US$8.4 billion on May 26, 2017 and low of US$1.0 billion on Mar 14, 2009). Within this (US$3 billion), our estimates suggest that, around US$0.5 billion-1 billion is strategic holdings of sponsors.
That said, remaining US$2 billion is 4 percent of market capitalization and 13 percent of free float capitalization.
The analysts hoped that US$200-300 million net foreign selling during 2021, where the overall outlook of Emerging and Frontier Markets is also improving.
Gold remained the most value generator asset class for investors for the second consecutive year by posting a return of 29 percent in (PKR Terms). Gold prices increased significantly due to tough economic conditions globally amidst COVID-19 outbreak as its considered a safe haven during times of global turmoil.
Fixed Income return (10-year PIB) was 17 percent in 2020, higher than equities return of 7.3 percent.
Real Estate posted a return of 2 percent during the year (2019: 5 percent. The performance of this asset in 1H2020 was poor (-1 percent) just like equities, however it rebounded in 2H2020 by 4 percent after the announcement of the construction package in July 2020.
USD remained relatively stable (+4 percent) against PKR compared to the previous two years’ average gain of 19 percent. Stability in this asset class is due to higher than expected remittances resulting in a Current Account surplus during 5MFY21 and overall weakness of the US Dollar.
The KSE-100 Index has outperformed Emerging and Frontier markets over the last 10 years as PSX 10-Year US$ based CAGR is 7 percent, higher than 1 percent of MSCI Emerging Markets and MSCI Frontier Market decline of 1 percent.
However, performance of PSX has remained in line with MSCI Developed Market and MSCI World indices.
Amongst different asset classes in Pakistan, PSX has outperformed others by posting the highest return of 14 percent a year during the last 10 years. This was followed by Gold’s return of 10 percent and T-bills’ return of 9 percent.
