Pakistan Beats India, BRICs in Market Returns

[RiazHaq]

As of July 14, 2011, Karachi stocks are up 2% and Indian stocks are down 9.2% for 2011, making Sensex among the worst performing indices in 2011, according to The Economist market review.

Markets | The Economist

 

[RiazHaq]

Here is BSE Sensex chart the author has selectively picked his dates, remember over a decade 1999-2009 a sample data that benefits his argument if he picked lets say 2000-2010, he would have lost his argument

http://finance.yahoo.com/echarts?s=^BSESN#chart2:symbol=^bsesn;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

Oh really?

Here's the 1999-2009 chart:

South Asia Investor Review: Pakistani Stocks Beat BRIC Shares in 1999-2009

 

[AmberDutt]

KSE, not as impressive as it looks: Numbers don

With fiscal year 2011 ending, Pakistan’s main stock index, the KSE-100 Index showed impressive growth of 28.91%, closing at 12,532.28 points. The other component of capital markets, the debt side, saw Engro Corporation breaking barriers and coming up with a Corporate Bond for retail investors. Buoyed by raising Rs4 billion at 14.5% for a period of three years, Engro again came to the market in the first week of June 2011, targeting another Rs3 billion on the same terms. With the debt market largely run on over the counter trades between financial institutions, the equity markets act as a barometer for any economy.

Whenever I hear fund managers or country pitches from India, Sri Lanka, Malaysia or any other emerging market, a key component remains the performance of the equity markets. To substantiate 9% GDP growth of India, Sensex’ growth and its attraction for foreign investors is touted. Just for the record, Sensex has grown by 5.61% in period of July 2010 to June 2011. This is not to say Pakistan is better than India or the other way round, the fact remains each and every market has its own dynamics which allow it to be attractive to investors.

If India’s stock market is quite liquid with an average daily volume of 357.98 million shares, our volumes were dismally low at 94.55 million shares per day in the just concluded fiscal. On the other hand the top traded share in Pakistan during the last year has been a company whose share price has ranged between Rs. 8 and 16 (Lotte PTA, whose shares traded 11.06 million per day)! One can imagine the value of trades in Pakistan.

The 94.55 million shares per day in FY2011 were 41.16% lower than FY2010. Low volumes entail a risk for investors meaning liquidation of investments may potentially be an issue.

If one takes a look at the KSE website’s front page there is a section called “KSE Announcements”, it’s not very encouraging. During June 2011 only, as many as 11 branch offices of KSE brokerage firms have been shut down. According to inside information, as many as 15-20 brokerages are planning to shut down due to continued absence of volumes. This is not something that really fits in with the image of a robust stock market.

There is no single reason that can be considered as “the ill” facing our market. With energy crisis and highly volatile security condition operational issues like inability to settle the procedure of Capital Gains Tax and coming up with a leverage product that did not meet the needs of the investors are key examples that are responsible for the lack of business in our capital markets over the last few years.

Let me give an example of a recently held IPO of Pakgen Power Limited, which was formerly known as AES Pak Gen Company Limited. Now under the management control of Nishat Group which is undoubtedly the largest business group of the private sector in Pakistan, 10% shares of the company were offered to the general public at Rs19 per share inclusive of a premium of Rs. 9 per share. A company with a 13-year operational history and an installed capacity of 365 MW of electricity, it offered all new shareholders a Rs1 per share dividend upon allotment. With an interesting list of shareholders including a leading very vocal political figure from the opposition who also applied for the shares, the issue should have been successful! Success for a capital markets transaction can be seen with the amount of oversubscriptions and number of investors. In Pakgen’s case, only 37% of the shares were snapped up! It is not the case that it is a bad company or it has no potential, the lack of interest in the offer reflects the lifelessness in our market.


With the lack of interest in the market at an alltime high, the key stakeholders including the government through SECP and FBR need to work with the capital markets to come up with a solution. In the absence of an efficient and well running market, we are continuing to see huge amounts being placed in government debt like National Savings. The government also needs to progressively allow for the demutualisation of the stock exchanges, which can potentially allow capital of the existing members to be freed up and be used for investment in the market.

In essence, like many other areas, time is very short for the government. It has to take aggressive steps that can aid the market to become well-oiled and functioning again. Then, the numbers will truly not lie.

The writer is an investment banker based in Sharjah
Published in The Express Tribune, July 4th, 2011.

 

[praveen007]

mr. Haq i am very happy that pakistan is performing well.
But would you please provide a neutral source about your claim that - 'KSE gain better then BSE '.
As your only artical sources are your own written blog on different site.
So please provide a netual link else dont post such artical.

 

[RiazHaq]

KSE, not as impressive as it looks: Numbers don

With fiscal year 2011 ending, Pakistan’s main stock index, the KSE-100 Index showed impressive growth of 28.91%, closing at 12,532.28 points. The other component of capital markets, the debt side, saw Engro Corporation breaking barriers and coming up with a Corporate Bond for retail investors. Buoyed by raising Rs4 billion at 14.5% for a period of three years, Engro again came to the market in the first week of June 2011, targeting another Rs3 billion on the same terms. With the debt market largely run on over the counter trades between financial institutions, the equity markets act as a barometer for any economy.

Whenever I hear fund managers or country pitches from India, Sri Lanka, Malaysia or any other emerging market, a key component remains the performance of the equity markets. To substantiate 9% GDP growth of India, Sensex’ growth and its attraction for foreign investors is touted. Just for the record, Sensex has grown by 5.61% in period of July 2010 to June 2011. This is not to say Pakistan is better than India or the other way round, the fact remains each and every market has its own dynamics which allow it to be attractive to investors.

If India’s stock market is quite liquid with an average daily volume of 357.98 million shares, our volumes were dismally low at 94.55 million shares per day in the just concluded fiscal. On the other hand the top traded share in Pakistan during the last year has been a company whose share price has ranged between Rs. 8 and 16 (Lotte PTA, whose shares traded 11.06 million per day)! One can imagine the value of trades in Pakistan.

The 94.55 million shares per day in FY2011 were 41.16% lower than FY2010. Low volumes entail a risk for investors meaning liquidation of investments may potentially be an issue.

If one takes a look at the KSE website’s front page there is a section called “KSE Announcements”, it’s not very encouraging. During June 2011 only, as many as 11 branch offices of KSE brokerage firms have been shut down. According to inside information, as many as 15-20 brokerages are planning to shut down due to continued absence of volumes. This is not something that really fits in with the image of a robust stock market.

There is no single reason that can be considered as “the ill” facing our market. With energy crisis and highly volatile security condition operational issues like inability to settle the procedure of Capital Gains Tax and coming up with a leverage product that did not meet the needs of the investors are key examples that are responsible for the lack of business in our capital markets over the last few years.

Let me give an example of a recently held IPO of Pakgen Power Limited, which was formerly known as AES Pak Gen Company Limited. Now under the management control of Nishat Group which is undoubtedly the largest business group of the private sector in Pakistan, 10% shares of the company were offered to the general public at Rs19 per share inclusive of a premium of Rs. 9 per share. A company with a 13-year operational history and an installed capacity of 365 MW of electricity, it offered all new shareholders a Rs1 per share dividend upon allotment. With an interesting list of shareholders including a leading very vocal political figure from the opposition who also applied for the shares, the issue should have been successful! Success for a capital markets transaction can be seen with the amount of oversubscriptions and number of investors. In Pakgen’s case, only 37% of the shares were snapped up! It is not the case that it is a bad company or it has no potential, the lack of interest in the offer reflects the lifelessness in our market.


With the lack of interest in the market at an alltime high, the key stakeholders including the government through SECP and FBR need to work with the capital markets to come up with a solution. In the absence of an efficient and well running market, we are continuing to see huge amounts being placed in government debt like National Savings. The government also needs to progressively allow for the demutualisation of the stock exchanges, which can potentially allow capital of the existing members to be freed up and be used for investment in the market.

In essence, like many other areas, time is very short for the government. It has to take aggressive steps that can aid the market to become well-oiled and functioning again. Then, the numbers will truly not lie.

The writer is an investment banker based in Sharjah
Published in The Express Tribune, July 4th, 2011.

The author talks about a lot of issues but he ignores the fundamental fact that Pakistani equities attract investors, domestic and foreign, by offering very attractive valuations and higher returns than other regional markets.

After the 26% gain in 2010, the KSE-100 shares still trade at PE ratio of just 8, significantly discounted relative to KSE's historic price-earnings multiple of 10, and other regional markets of Shanghai and Manila at 15, and Mumbai at about 20.

Haq's Musings: Will Karachi Stock Index Continue its Advance in 2011?

 

[AmberDutt]

The author talks about a lot of issues but he ignores the fundamental fact that Pakistani equities attract investors, domestic and foreign, by offering very attractive valuations and higher returns than other regional markets.

After the 26% gain in 2010, the KSE-100 shares still trade at PE ratio of just 8, significantly discounted relative to KSE's historic price-earnings multiple of 10, and other regional markets of Shanghai and Manila at 15, and Mumbai at about 20.

Haq's Musings: Will Karachi Stock Index Continue its Advance in 2011?

Mate, its a Pakistani author.. so may be all Pakistanis dont have the same star eyed view of your economy as you do.. Or may be them being closer to home, have a better view of reality

P/E is fine, but does not factor in the non financial risk of an investment. Shanghai, Manila and even India are not considered as risky (non financial risk) as risky destinations as Pakistan. Hence Pakistan can not command the same P/E multiple as these countries. Surely if the terrorist menace goes away, then yes, but till then, this is a foolish comparison

 

[bandit]

The author talks about a lot of issues but he ignores the fundamental fact that Pakistani equities attract investors, domestic and foreign, by offering very attractive valuations and higher returns than other regional markets.

After the 26% gain in 2010, the KSE-100 shares still trade at PE ratio of just 8, significantly discounted relative to KSE's historic price-earnings multiple of 10, and other regional markets of Shanghai and Manila at 15, and Mumbai at about 20.

Haq's Musings: Will Karachi Stock Index Continue its Advance in 2011?

Ok lets get some facts straight here.

KSE gets better returns.....so....do you know the reason for it?

What Does Risk-Return Tradeoff Mean?
The principle that potential return rises with an increase in risk. Low levels of uncertainty (low risk) are associated with low potential returns, whereas high levels of uncertainty (high risk) are associated with high potential returns. According to the risk-return tradeoff, invested money can render higher profits only if it is subject to the possibility of being lost.

Risk-Return Tradeoff Definition

The basis of finance is the fact that returns have to commensurate with the risks associated with it. Due to the highly volatile nature of KSE and the country risk associated with it, it has to return higher profit. This implies the fact that there is more chance of getting your money lost in KSE so it has to generate extra returns.

A fundamental idea in finance is the relationship between risk and return. The greater the amount of risk that an investor is willing to take on, the greater the potential return. The reason for this is that investors need to be compensated for taking on additional risk.

Risk Definition

Talking about returns alone is fundamentally flawed, the returns have to be standardized by the amount of risk(volatility) they carry. So the fact that KSE is generating more returns is totally in line with the fact that it carries a much higher risk of investing. You can invest in KSE and may get extra return and eat well, but then you cant sleep well for fear of losing your money...

Investopedia explains Eat Well, Sleep Well
Investing in high-risk, high-reward securities will offer you the potential to eat well, but the risky nature of these securities might prevent you from sleeping at night. By contrast, investing safely means that you will sleep well, but the low rate of return may keep you from eating well.

Now what all the education above means is, you have to know the fundamentals of Finance if you go about trying to compare returns from different countries.
Comparing India and Pakistan stock exchanges is apples and oranges, one is a stable high growth economy, one is daily riddled by bomb blasts and ruled by inept people with daily threats of bankruptcy, where would you want to invest in if you want to sleep at night?

 

[Alugar]

Karachi shares market significantly outperformed Mumbai in the last ten years. But this fact is not enough to get any positive attention from Fareed Zakaria, India's best-known cheerleader in the West.

As expected, Fareed Zakaria's discussion of "The Rise of the Rest" sings praises of the BRIC nations, particularly mentioning his native India in the most glowing terms. There is nothing wrong with that, except that Zakaria omits any positive mention of India's neighbor Pakistan in the context of economic performance in the decade of 1999-2009, and chooses to strike familiar themes of "Islamic jihadists" and "terrorism" when he does make any references to Pakistan.

What Zakaria has omitted is the story of the extraordinary returns Pakistan has produced for investors. Pakistan's key share index KSE-100 was just over 1000 points at the end of 1999, and it closed at over 9727.40 on Dec 31, 2009. During the same period, Mumbai Sensex index moved from just over 5000 points to close at 17,464.81. If you had invested $100 in KSE-100 stocks on Dec. 31, 1999, you'd have over $900 today, while $100 invested in the Mumbai's Sensex stocks would be worth $274. Investment of $100 in emerging-market stocks in general on Dec. 31, 1999, would get you about $262 today, while $100 invested in the S&P500 would be worth $91.

Haq's Musings: Karachi Tops Mumbai in Stock Performance

Haq's Musings: India and Pakistan Contrasted in 2010

What about total count of money flow in Mumbai and Karachi stock market ?????

What is the ratio??????

what a stupid reason to celebrate

 

[zombieland]

What are you people harping about so much ... Stock Market Returns???? I mean, just because a number looks good to X, Y and Z person does it mean we are doing well????

When did growth in stock market return and volumes, factor in so much in the growth of economy.... face reality and look at GDP numbers, inflation, employment growth etc. These are real facts ... not STOCK MARKET ...

Do you guys even know which country has outperformed all asian markets for this year ... its New Zealand!!! .... but does it mean that it had a fillip in its GDP growth ... NO !!!!

Stick facts which matter to us ... not what KSE is showing ....

 

[RiazHaq]

Mate, its a Pakistani author.. so may be all Pakistanis dont have the same star eyed view of your economy as you do.. Or may be them being closer to home, have a better view of reality

P/E is fine, but does not factor in the non financial risk of an investment. Shanghai, Manila and even India are not considered as risky (non financial risk) as risky destinations as Pakistan. Hence Pakistan can not command the same P/E multiple as these countries. Surely if the terrorist menace goes away, then yes, but till then, this is a foolish comparison

It's not matter of anyone's nationality, but one of basic valuation that has to be fundamental to any stock analysis, in addition to consistency of returns over a long period of time. On these two counts, KSE looks superior to Indian stocks and those of any other BRICS.

Hence the FII inflow intio KSE, as captured by Financial Express:

Mumbai: Whether Dalal Street likes it or not, India is now the worst-performing market in the world as dark clouds have started cluttering the economic, investment and political horizons. Worried foreign institutional investors (FIIs), who came to India in droves last year, have been pulling out funds with such alacrity this year that even a much smaller — and significantly more volatile and unstable — market like Pakistan has got more foreign inflows in the last six months.

More FII money to Pak than to India

 

[danger007]

It's not matter of anyone's nationality, but one of basic valuation that has to be fundamental to any stock analysis, in addition to consistency of returns over a long period of time. On these two counts, KSE looks superior to Indian stocks and those of any other BRICS.

Hence the FII inflow intio KSE, as captured by Financial Express:

Mumbai: Whether Dalal Street likes it or not, India is now the worst-performing market in the world as dark clouds have started cluttering the economic, investment and political horizons. Worried foreign institutional investors (FIIs), who came to India in droves last year, have been pulling out funds with such alacrity this year that even a much smaller — and significantly more volatile and unstable — market like Pakistan has got more foreign inflows in the last six months.

More FII money to Pak than to India

superior to BRICS. BRICS countries includes china also. think for ur self once again.

 

[SpArK]

superior to BRICS. BRICS countries includes china also. think for ur self once again.

Must have got info from the jokes of the year book for 2011.

 

[bandit]

It's not matter of anyone's nationality, but one of basic valuation that has to be fundamental to any stock analysis, in addition to consistency of returns over a long period of time. On these two counts, KSE looks superior to Indian stocks and those of any other BRICS.

So you think you can throw technical terms around and fool people Mr. Haq?

Your first point valuation, lets see the risk adjusted returns or at least the discount rates you applied for you claims that KSE's basic valuation is better than BSE. Of course you know what that is right....since it is not possible to calculate valuation without it.

Second point, Consistency of returns requires Standard Deviation and
Variance values, since you claim so loudly about it, lets see the numbers these are based on, I am sure you have a very nice excel sheet ffilled with this data.

Or do you just 'look' lol at charts and say.... oh this is better.

 

[danger007]

Must have got info from the jokes of the year book for 2011.

lol man. he made my day. i wish success for pakistan. but pakistan right now not in a position to compete any bric country.

 

[ashokdeiva]

Guys, do we Indians really need to debate on this topic, there has been a day to day thread opened that Pakistan outperforms India on any field and we go on a debate, In reality we know that Pakistan is like a stock one day it performs well and all of Pakistan will say that Pakistan has surpased India, and the rest of the 364 days, Pakistan sufferes and no one from Pakistan exepet a few who like to change Pakistan and take it to glory do accept that.