Posts Tagged ‘ Karachi Stock Exchange ’

Pakistan Emerges as Second Best Performing Market in Asia

As Reported by The Express Tribune

Despite security concerns, tense relations with the US and economic slowdown, Pakistan’s stock market has managed to rank as the second best performing market in Asia after Indonesia in 2011 so far, according to a Topline Securities research note.
Corporate earnings and reduction in interest rates helped equities so far in 2011 amongst the Asian Emerging and Frontier markets tracked by MSCI, adds the note.

Resurgence of US crisis coupled with headwinds in eurozone saw huge selling in global equity markets as risk-averse offshore investors moved to safe heavens. The MSCI All Country World Index has slumped by 8% in 2011 till October 18 on concerns about the world economy and the lack of any credible solution to Europe’s debt issue, the reason also why most Asian Emerging and Frontier markets have posted negative returns so far in 2011.

Moreover, except the Indonesian market, all markets in MSCI Asian Emerging and Frontier markets are down 5% to 39% with India and China, the two leading markets falling by 26% and 24%, respectively.

Interestingly, Pakistan with a fall of 5% is so far the second best performing market amongst these 12 countries.

Due to fear of another recession, the benchmark MSCI Word Index is down 8%. Emerging and frontier market indices also followed by falling 18% and 25%, respectively.

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Pakistan Attractive as Growth Outweighs Violence, Atlas Says

By Naween A Mangi for Bloomberg

Atlas Asset Management Ltd., manager of Pakistan’s best-performing equity fund, said Asia’s cheapest stock market offers “attractive returns” as the economy grows even with mounting terrorist attacks and political violence.

“I really don’t spend any time worrying about law and order,” said Muhammad Abdul Samad, 40, who oversees $77 million in Pakistani stocks and bonds as chief investment officer at Atlas Asset in Karachi. “If you want to make returns, you have to look at the positives: we have a huge market of 180 million people and the economy is still growing.”

Gains in National Refinery Ltd. (NRL), the second-biggest oil processor, and Attock Petroleum Ltd. (APL), a fuel retailer, boosted Atlas’s top fund in the year ended June, Samad said. For the fiscal year starting July, it’s seeking investments in banks, oil and gas, and fertilizer industries, he said.

Pakistan’s benchmark stock index, which trades at 6.4 times estimated earnings, the lowest in Asia, has fallen 9 percent since the end of June as escalating violence hurt business confidence. Prime Minister Yousuf Raza Gilani’s government aims to boost economic growth to 4.2 percent in the year to June 30, 2012, from 2.4 percent in the previous 12 months.

Turmoil on global stock markets may prompt the fund to change its asset allocation, increasing cash holdings or preferring defensive stocks with higher dividend yields, Samad said on Aug. 5, when the MSCI Asia Pacific Index tumbled more than 4 percent to cap its worst week since October 2008.

“Selling from foreign portfolio investors is affecting the local market,” Samad said.
Last year, global funds bought $344 million worth of Pakistani stocks compared with net sales of $65 million, according to central bank data. More than 35,000 Pakistanis have been killed in terrorist attacks since 2006 as Taliban militants retaliate against military offensives in the northwest, according to the government.

Samad’s 650 million rupee ($7.5 million) Atlas Stock Market Fund outperformed all Pakistan’s 30 equity funds, according to Invest Capital Markets Ltd. The fund returned 40 percent in the 12 months ended June 30 and beat the 29 percent return of the benchmark Karachi Stock Exchange 100 Index.
His top five holdings as of June 30 were Nishat Mills Ltd., MCB Bank Ltd., Pakistan Oilfields Ltd., United Bank Ltd. and Allied Bank Ltd.

“Banks are going to post attractive earnings because if interest rates come down, they will lend more to the private sector and if they don’t, they will invest in high-yielding government securities,” said Samad, adding that the three banks are among his top picks this fiscal year. “Banks are in a comfortable position either way.” Pakistan’s central bank unexpectedly cut the benchmark interest rate to 13.5 percent on July 30, after holding it at 14 percent, one of the world’s highest, for four straight reviews.

In the oil and gas sector, Samad likes Pakistan Oilfields, Pakistan Petroleum Ltd., and Attock Petroleum. Pakistan, which imports 80 percent of its fuel needs, is increasing production to reduce reliance on shipments from overseas. He also favors Fauji Fertilizer Ltd., the biggest urea maker, and Fauji Fertilizer Bin Qasim Ltd. (FFBL), a fertilizer producer.

Samad said investors who “select carefully” can make a return of as much as 30 percent this year because Pakistani stocks are “heavily undervalued.” Samad said he keeps about 4 percent of his fund “active” and may sell if a stock rises by 10 percent to 15 percent.
“We don’t go for speculation or price momentum and we don’t churn the mix too much,” said Samad, who has an MBA from Southeastern University in London and has been at the fund management firm since 2005. “If the company is fundamentally strong, it will definitely outperform the market.”

There are 137 funds in Pakistan overseeing 250 billion rupees as of June 30, up 25 percent from a year ago, according to Invest Capital, equivalent to 4 percent of the 5.9 trillion rupees sitting in the nation’s bank deposits.
“Active fund management, timely investment and divestment, as well as the performance of some stocks like Attock Petroleum were main reasons for Atlas’s outperformance,” said Mazhar Sabir, an analyst at Invest Capital Markets in Karachi.
Samad said Atlas may introduce a government bond fund this year targeting investments of three to five years and is considering a dividend-yield equity fund and a sector-specific stock fund next year.
“In the short run, law and order problems definitely hurt investors,” Samad said. “But in the long run, there’s no impact. And we’re here for the long run.”

Pakistan Faces Economic Hit from Flood

By David Roman for The Wall Street Journal

The flooding in Pakistan will inflict serious damage on its economy, posing another major challenge for a cash-strapped government struggling to keep a recovery on track in the face of high inflation and a relentless Islamist insurgency.

Assistance from the International Monetary Fund and Western countries will likely help Pakistan avoid another brush with bankruptcy as it tries to cope with the damage, which by some estimates may reach $43 billion. But the floods will weigh heavily on economic growth this year and leave a long-term mark on the economy.

“It’s a very serious tragedy,” said Philip Wyatt, a senior economist at UBS. “The hit on the growth rate is going to be very severe … We can see a loss of one or two points of economic growth, depending on the damage.” In the last fiscal year ended June 30, Pakistan’s economy grew 4.1%.

Moody’s Investors Service, which had expected Pakistan’s economic growth to pick up to 4.5% this fiscal year, may lower its estimate to 3% to 3.5%, said analyst Aninda Mitra.

The flood began in July and at one point covered a fifth of the South Asian nation, or land roughly equivalent to the size of Uruguay. According to the United Nations, the disaster has affected close to 20 million people, killing 1,500 and leaving 1.2 million homes damaged or destroyed.

Coping with the social and economic costs of the catastrophe will strain the government’s finances. The budget deficit was already on track to reach 4.5% of gross domestic product in the fiscal year ending June 30 before the crisis but now could widen to as much as 6% to 7% of GDP, said Mr. Mitra. That’s a grim prospect for a country, which had external debt totaling $55.63 billion as of June 30.

President Asif Ali Zardari’s government has been reaching out to other countries for help. A delegation met with IMF officials Monday in Washington. Donors including the U.K. and the European Union have so far pledged almost $500 million in additional help.

Moody’s is unlikely to upgrade Pakistan’s credit rating in coming months due to the devastation from the floods and other challenges, but the country’s current B3 rating “adequately captures the risk” of the likely economic slowdown and is unlikely to be downgraded further, said Mr. Mitra. A B3 rating is just one notch above the C level, which applies to countries in effective sovereign default, and makes it hard for a country to issue bonds in the international market.

The natural disaster is the latest setback for the Pakistan economy, which after several years of strong growth almost ground to a halt in 2008, hurt by budget overruns, a loss in export competitiveness due to high inflation, and an insurgency that continues unabated. On Monday, while emergency workers worked to shore up levees in two southern cities, at least 36 people were killed in three separate bomb attacks across the country, and 12 suspected militants were killed in U.S. drone attacks near the Afghan border.

Concerns about the economic fallout have kept pressure on Pakistan’s financial markets, though the impact has been moderate.

The cost of insuring against a default or restructuring of Pakistan’s bonds remains at very elevated levels, but has been relatively steady in recent weeks, a sign that investors anticipate IMF and U.S. support to prevent any fiscal crisis. The spread on Pakistan five-year credit default swaps was quoted at 1,099 basis points Tuesday, roughly on par with those of other high-risk sovereign bond issuers like Venezuela, but well below early-2009 highs of over 2,100 basis points during the global financial crisis.

Pakistan’s benchmark stock index, KSE-100, has fallen 7% so far in August, but is up 4% so far this year, roughly in line with other emerging market indexes.

The Pakistan rupee, one of Asia’s weakest currencies in recent years, has fallen in recent days, but has found support above its record low against the dollar of 85.84 rupees hit on Aug. 2, helped by expectations that remittances from overseas Pakistanis, which have averaged around 10% of GDP in recent years, may rise to help families at home cope with the floods.

But analysts expect the rupee to remain under pressure in coming months due to Pakistan’s current account deficit and high inflation rate, which ran at 12.3% in July. The floods are likely to push up food prices and transportation costs for other goods, likely eliminating any chance that inflation might fall below 10% this year, said Mr. Wyatt at UBS.

Pakistan Oil & Gas to Spend $1 Billion on Exploration, CEO Says

By Khaliq Ahmed and Farhan Sharif for Bloomberg

Oil & Gas Development Co., Pakistan’s biggest fuels explorer, plans to spend a record $1 billion this year to drill 48 new wells and increase production, to help bridge the nation’s record energy deficit.

“We are following a very aggressive exploration policy,” Chief Executive Shah Mehboob Alam said in an interview at his office in Islamabad yesterday. “We are targeting a number of discoveries.”

Improved domestic energy supplies may help Pakistan’s economy which has been hurt by terrorism and falling foreign investment. Demand for energy is three times supply and daily power outages have forced textile and engineering factories to close and caused riots across the country.

“There is a huge need and also huge potential to increase production by explorers,” said Umer Ayaz, a research analyst at JS Global Capital Ltd. in Karachi. “Pakistan has unusual risks in exploration and also unusually high potential.” A “sizeable” discovery in the northwest will be announced in “a couple of days,” Alam said, without giving details.

Shares of Oil & Gas Development rose 2.8 percent to 149.56 rupees on the Karachi Stock Exchange yesterday, the highest since Oct. 30, 2006. The stock has gained 35 percent this year compared with an 8 percent increase in the benchmark index. Oil & Gas plans to expand exploration in the western province of Baluchistan, where attacks on pipelines and installations have disrupted gas supplies, Alam said. The province is estimated to hold more than half the country’s gas reserves.

The company expects the Zin Block in Baluchistan to generate its first gas flows within two years. The block has estimated gas reserves of 10 trillion cubic feet and drilling is scheduled to start as soon as the government approves security plans within the next two weeks, he said.

“We drilled only five out a planned 15 wells in Baluchistan last year because of security issues,” he said. “Now, we have submitted a plan to the Finance Ministry under which the Frontier Corp. will raise a special force of 500 to 600 people.” Baluch nationalists want political autonomy and a share of the resources in the province, where the country’s largest gas fields, including Sui, are located. The Frontier Corp. is part of Pakistan’s paramilitary force.

The company is also working in fields in western Baluchistan, including the Samandar field, west of Karachi, and Shahana, which is near the border with Iran, Alam said. Oil & Gas will invite bids today for the development of Kunar Pasakhi Deep and Tando Allah Yar fields in the southern province of Sindh, Alam said. Previously awarded tenders had been canceled after being challenged in court for not complying with regulatory procedures. The two fields may produce 280 million cubic feet of gas a day, 360 metric tons of liquefied petroleum gas a day and 4,300 barrels of oil a day, Alam said.

The company drilled 26 wells and made six discoveries in the year ended June 30, including at Nashpa in the northwest, which is producing 15 million cubic feet a day of gas and 4,700 barrels of oil a day, he said. Oil & Gas Development discovers fuel in one out of every 2.3 wells drilled, compared with an industry average of one in every 3.8, he said.

Oil & Gas Development will increase production after installing new compressors to plug leaks at the Qadirpur gas field by September, Alam said. The company plans to buy two new rigs this year. The Qadirpur field in the southern province of Sindh contributes about 40 percent of the company’s total gas output.

Oil & Gas Development produces about 1 billion cubic feet of gas a day, or a quarter of the country’s total output. Its oil production is 60 percent of the nation’s total of 62,000 barrels a day. Pakistan imports 85 percent of its oil needs. The company’s profit in the 12 months ended June 30, will be “higher than last year,” Alam said, without giving details. Oil & Gas reported a net profit of 55.5 billion rupees ($647 million) in the year ended June 30, 2009, according to data compiled by Bloomberg.

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