Pakistan stock market down 13%; Will PM Shahid Khaqan Abbasi’s regime turn the tide?
Pakistan’s benchmark index, the KSE100, has lost its mojo amid political volatility. The benchmark index is down over 13% (as of July 31st), from its recent peak on May 24th. The corruption probe against the nation’s former Prime Minister, Nawaz Sharif, and his subsequent disqualification by the Supreme Court has added uncertainty to the stock market. While the Pakistan stock market has had a decent run under the aegis of Nawaz Sharif, what is now in question is whether the economy’s stock market will reverse trend under Pakistan’s newly elected (on August 1) Prime Minister, Shahid Khaqan Abbasi.
Additionally, investor interest had heightened in the light of the MSCI’s inclusion of Pakistan’s equities (PAK) into its emerging markets (EEM) (VWO) index. That seems to be dwindling now, as also indicated by volumes seen by the Global X MSCI Pakistan ETF (PAK) (see chart above) which tracks Pakistan’s equities.
Hot money reversed course after MSCI upgrade
Hot money, which had been piling into the former frontier (FRN) market’s PAK ETF, reversed course soon after it’s upgrade to the emerging market status by the MSCI. The sell-off in equity caused the stock market to dip, leading to a 13% plunge in the Pakistani equity benchmark KSE100 index (as of July 31).
Investors looking for bargain
What investors are more concerned about here is whether this plunge is a bargain or a falling knife? Fundamentals of the economy and its listed companies remain strong.
- Fund managers have been tagging Pakistan as one of the most promising emerging market for 2017.
- It ranks above India (EPI) in investor favorability
- It is poised to gain from China’s Belt & Road Initiative
- Corporate governance in the economy is considered superior to its frontier markets peers and in line with the emerging markets (IEMG) average.
In the second part of this series, we take a bird’s eye view of the Karachi Stock Exchange to figure the companies with the strongest fundamentals that are currently trading at attractive discounts.