Pakistan Was The Best Performing Equity Market in Q3 2020: Topline Securities

Pakistan was the best-performing equity market in the world in the third quarter of 2020 (July-Sep) with the KSE-100 index following up its impressive second quarter 2020 performance with another impressive return of 18 percent in PKR and 19 percent in USD terms during third quarter 2020, according to a report by Topline Securities.

During the second quarter of 2020, equity market returns were 18 percent in Pak rupee and 17 percent in USD.

KSE-100 saw a 48 percent recovery from its recent low on March 25, 2020. The country has seen a substantial reduction in Covid-19 cases (from an average increase of 5,500 cases/day in June to 650 cases/day now), while economic activities have seen an almost complete resumption from Jul/Aug 2020, said Topline Securities’ research report.

The market continues to reap the benefits of the stimulus packages provided by the government and the State Bank. The interest rate cuts by the latter have resulted in the injection of additional liquidity into the market, along with re-allocation of the portfolio towards equities vis-à-vis fixed income, it added.

It has also reflected in the overall increase in turnover at the bourse, with the third quarter of 2020 average traded volumes increasing by 403 percent on YoY to 500 million shares/day and average traded value rising by 347 percent YoY to $105 million/day.

The individuals were again key buyers during the quarter with net buying of $108 million, while foreigners and banks were top sellers with net selling of $95 million and $46 million, respectively.

Key sectors that outperformed during the quarter were Refinery and Engineering, while Oil & Gas Exploration and Fertilizers underperformed in the market.

“We expect market direction to be determined by a multitude of factors in the fourth quarter of 2020,” it added.

FATF Plenary meeting on Oct 21 – 23, 2020, where discussions will revolve around Pakistan’s performance and whether it merits upgrade/downgrade/status quo on its grey-list status.

The valuations of the Pakistan market remain attractive with market 2021F P/E of 6.6x with corporate earnings likely to grow by 12 percent YoY in 2021F. The market continues to trade over 55 percent discount to MSCI EM (Asia) compared to its historical average discount of 40 percent.

The spread between the market’s earnings yield and 12M T-bills have expanded as a result of the aggressive cut in interest rates by SBP.

“We remain Over-weight on E&Ps, Cement, Steel, and Autos while we maintain our Market-weight stance on Banks, Fertilizers, Pharmaceuticals, and IPPs,” the report said.