AKD Quotidian about — Pakistan Market: Jan’14 Review and Outlook
Karachi, February 03, 2014 (PPI-OT): The market welcomed the New Year with its bullish theme intact as the benchmark KSE-100 Index gained 6.03%MoM in Jan14 to close at 26,784 points.
According to AKD Securities, in the process, the Index has returned 27.5%FYI4TD, on track to reach AKD Securities’ base case Jun14 Index target of 27,800 points (bull case Index target: 29,700). Despite the strong performance, Pakistan continues to be attractive on valuations with an FYI4F PIE of 86x compared to regional average of 11.2x. At the same time, Pakistan’s dividend yield at 5.9% far exceeds the regional average of 3.4%.
In terms of corporate developments, key headlines in the month included i) hike in GIOC for industrial sectors, ii) approval of concessionary gas rate for Engro Fertilizer and iii) announcement by the Chinese group Shandong Ruyi of investing US$2bn in the textile and energy sectors of Pakistan. At the same time, lower than expected inflation reading with Dec13 CPI clocking in at 9.iB%YoY buoyed market sentiment. Despite the positives, the market may potentially be heading down correction territory with the MSCI EM Index down 3.7% over the past two weeks.
Taking cue, frontier markets have also underperformed with the MSCI FM Index down 1.2% over the past two weeks, where AKD Securities may see a trickle down impact on the KSE-100 Index as well. At current levels, AKD Securities advocates a cautious stance in Feb’14 where AKD Securities’ preferred stocks include a blend of growth (NML, DGKC, FATIMA) and high OW (HUBC, KAPCO, NBP).
Review and Events: The KSE-100 Index gained 603% in Jan’14 buoyed by broad sector based positive developments (Textiles and Sugar) as well as company specific news (ENGRO).Additionally, positive political developments particularly on the security front with expected initiation of dialogue with the TTF helped sustain market momentum. Not surprisingly, foreigners continued to be heavy buyers in the market with net inflow of US$31 .8mn in Jan’14.
The economic situation continued to be a mix of positives and negatives with a lower than expected inflation reading at 9.2%YoY in Dec’13 (average 1HFY14 CPl: 8.9%YoY) countered by latest SBF fx reserves at just $3.2bn – an import cover of less than a month.
Corporate Developments: Outperforming sectors included Beverages (+74%MoM) Chemicals (+21%MoM on commencement of trading as well as positive development in El LRT), Food Producers (+36%MoM on account of reduction in FED on local sales for Sugar manufacturers as well as multiple B-rating within laggards), Personal Goods (+15%MaM on account of continued euphoria from the GSP Plus status and possible M and A activities within the sector) and Non-life insurance (+1 9%MoM).
On the flipside. index heavyweights significantly underperformed with the Oil and Gas sector gaining just 07% on the back of a 33% decline in international oil prices (Brent) in Jan’14 while Commercial banks also remained flattish with a 0.4% growth in Jan’14. Going forward, notable corporate developments include the still pending revision in OMO margins, possible revision in gas tariffs for the industrial sector and the new Auto Policy.
Outlook and Investment Perspective: While the KSE-100 index has gone from strength to strength backed by positive corporate developments, external account weakness as well as correction within global markets might have a trickle down impact where the index may potentially enter correction territory in Feb’14.
That said, with result season in full swing, any potential surprises may alter AKD Securities’ thesis. At current levels, AKD Securities advocates a cautious stance in Feb’14 where AKD Securities’ preferred stocks include a blend of growth (NML, DGKC. FAI9MA) and high D/Y (HUBO, KAFCO, NBP).
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