Taking stock of the decade

This decade (2010-19) has been a mixture of hope and apprehensions for stock market investors.

Early years saw smooth sailing. Twists and turns in the stock market were mostly because of political wrangling among major parties or economic ups and downs. But the performance of the stock market in the last two and a half years has put all of that in the shade.

The downward slide began in May 2017 when the expectation of a massive inflow of funds from foreign passive investors, based on the country’s re-entry into the MSCI Emerging Market from Frontier Market, turned sour.

In anticipation, investors had indulged in frantic buying and the ferocious bull tossed the index to an all-time high of 53,124 points on May 25, 2017.

Investors resorted to panic selling when they saw the outflow of $81.7 million against the expected inflow of $300m on May 31. Share prices crashed and the index tanked to 37,919 points by December, reflecting a loss of 14,220 points in seven months.

The political turmoil, which began after Nawaz Sharif took oath of office on June 5, 2013, added fuel to the fire. Several major events — such as the creation of the Pakistan Stock Exchange (PSX) after the merger of three stock exchanges on Jan 11, 2016, and the sale of 40 per cent strategic shares to a Chinese consortium on Jan 21, 2017 — had little impact on the stock market as investors continued to avoid equities on political and economic uncertainties.

Equities outperformed other classes of assets over the last 10 years

Imran Khan took over as prime minister on Aug 18, 2018. That day the KSE-100 index stood at 42,447 points. Then the second meltdown of the decade started, with the index hitting the low of 33,900 points as investors fretted over the economic malaise. By early August, the economy started showing signs of recovery, thanks to the International Monetary Fund (IMF) bailout package and stabilisation measures, with foreign exchange reserves rising and the current account deficit shrinking.

The index took an unexpected turn as bulls made their way back into the market. From Aug 16 when the index had hit the pit (28,765 points), the market witnessed a spectacular rally, which took the benchmark to 40,848 points on Dec 27 — up 12,083 points or 42pc in four and a half months. Under the PTI government, the index has seen a minor positive change of 1,559 or 3.8pc so far.

Stocks over the decade

Figures gleaned from various sources show that over the 10-year period, equities outperformed other classes of assets. Gold provided an average yearly return of 3pc, dollar 6pc, treasury bills 9pc, Defence Savings Certificates 10pc and KSE-100 index 16pc.

From 2010 to 2016, the PSX gave out yearly returns of 28pc, -6pc, 49pc, 49pc, 27pc, 2pc and 46pc. In 2017, the PSX produced a negative return of 20pc and stood out as the worst performer among the regional markets. Investors saw negative returns of 24.9pc in 2018.

Owing to the splendid performance in the last quarter of 2019, the year will close with a positive return of 10.2pc. The dividend payout ratio has been between 43pc (2010) and 62pc (2017), which gives out an average of 53.8pc. In 10 years, the annual dividend yield was highest in 2011 (7pc). For the rest of the year, it stayed between 5pc and 6pc, which produces a 10-year average of 5.5pc.

Traded volume and value

The average daily volume and value was the lowest in 2011 at 60m shares and $48m, respectively. The highest daily volume was noted in 2016 (280m shares) with the traded value of $120m.

Banks, which constitute the most capitalised sector, have been the top performer along with oil and gas exploration and production companies in most years.

Other sectors that caught the investors’ eyes include fertiliser, cement, automobile, textile and food and personal care products. At the height of the bull run in 2017, Habib Bank, Lucky Cement, Oil and Gas Development Company and Engro Corporation were the leading stocks.

For much of the period under review, these stocks along with the big banks namely United Bank, National Bank, MCB Bank and Allied Bank set the market tone.

Foreign investment

During the Musharraf era (fiscal years 2003-08), foreign portfolio investment saw an inflow of $2.4 billion. Under the PPP government (fiscal years 2009-13), the net inflow amounted to $1.9bn. The PML-N government (fiscal year 2014-18) attracted foreign investment of $2.3bn.

Year-wise, the lowest foreign investment was recorded in 2018 with an outflow of $48m while the highest figure was $500m and received in 2010. Foreigners’ holding in May 2017 was $8.4bn. It has now sunk to $4.1bn.

Initial public offerings (IPOs)

Against an average of 25 new issues witnessed annually in the 1990s, IPOs were scant in 2010-19. A large number of companies were either delisted or opted for voluntary delisting. The total number of listed companies, which was 638 in 2012, now stands at 558.

Three companies were listed in 2012 and the same number of firms went public in 2013. Nine IPOs took place in 2014 while as many as 10 IPOs were floated in 2015 to raise Rs72.2bn. Only three companies sought listings in 2018 and one in 2019.

Interloop Ltd listed this year and raised Rs4.9bn, which made it the largest ever IPO in Pakistan’s history.

In April 2013, Unilever Pakistan sought voluntary delisting as the foreign parent company bought the minority stake at Rs15,000 per share, making it the biggest share repurchase transaction in the history of Pakistan.

Major debacles

KASB Bank fell and vanished in November 2014. In April 2015, directors of a brokerage firm, ACE Securities, sold shares of sub-account holders and fled the country in the fashion of the earlier fraud by Eastern Capital CEO Munir Ladha.

In both cases, the exact amount of loss to investors never surfaced but many said it was in billions of rupees. In July 2015, the Securities and Exchange Commission of Pakistan released a report on the stock market crisis of 2008, which named the names of perpetrators. Yet no one was ever held to account.

Published in Dawn, The Business and Finance Weekly, December 30th, 2019

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