2021 marked a “difficult” year for the PSX
KARACHI: The Pakistan Stock Exchange (PSX) – a benchmark for market performance – proved to be a lost battleground in 2021.
The benchmark, which started the year with 44,434.80 points, traded at 44,596.07 on Friday (the last day of the calendar year).
With a slight increase of 0.40% on the last day of the year, the benchmark PSX KSE-100 improved by 1.9% net during the year and closed at 44,596.07 points today. However, the market had performed extremely well over the previous two years – in 2019 and 2020.
A deterioration in macroeconomic indicators, which worsened due to uncertainty over the new government’s economic policy, confusion over whether Pakistan was going to the International Monetary Fund (IMF) and lack of clarity on the way the government plans to remedy the besieged economy, weighed on the market.
Calling 2021 a “tale of two halves,” said Samiullah Tariq, research director at Pakistan-Kuwait Investment Company. Geo.tv that the year of release was the year of reopening, significant optimism was observed in the early part of the year.
“The market also reflected this optimism and broke the 48,000 point mark in June 2021. However, following the opening up of global economies, commodity prices have jumped due to pent-up demand, and the country has faced inflation and trade deficit challenges, “he said.
“The market also reacted and did not perform well in the second half of the year,” he added.
Endorsing his point of view, BMA Capital Management executive director Saad Hashemy said: “Feelings in the stock market and expectations for the economy have remained bullish in the first six months of 2021.”
The analyst said the easing of COVID-19 restrictions globally, coupled with persistent disruptions in global supply, has led to a rise in commodity prices, where international oil prices have increased. peaked at over $ 80 per barrel (West Texas Intermediate) in November 2021, up from around $ 50 per barrel. in January 2021.
“The rise in international commodity prices has led to a widening of the external account deficit, soaring inflation and a retracement of local stock valuations in line with double-digit interest rates,” he explained.
Despite the volatile conditions, the activity gained ground with record average volumes recorded in 2021 at 474 million shares against 330 million last year, as well as the highest average value ever traded at Rs 16.9 billion against Rs 12.3 billion in 2020.
Morgan Stanley Capital International’s (MSCI) decision to drop the PSX among the less advanced economies in the Frontier Markets (FM) index of the Emerging Market (EM) index also prompted foreign investors to pull out of the market.
According to Arif Habib Limited, 2021 has been a “difficult year” as the pressure has been led by the external account, the depreciation of the rupee, the rise in inflation, the recurring waves of COVID-19, the delay in the IMF program approval and transition from MSCI EM to FM.
The brokerage pointed out that sectors topping the contribution table over the past year include technology and communications (1,003 points) amid revaluation and foreign interest, followed by commercial banks (921 points). ) who posted robust earnings despite low interest rates in most cases. of the year.
On the flip side, sectors that eroded market gains in 2021 included cement (373 points) due to high multi-year coal prices raising concerns about the outlook for margins, and oil marketing companies. and gas due to the increase in the circular gas debt (347 points).
Over the past year, the exchange announced the official launch of the long-awaited trading and monitoring platform called Designated Time Schedule (DTS) and increased the duration of daily stock trading by 30 minutes; however, due to technical issues encountered in the Jade Trading Terminal (JTT) and reluctance of market participants, the exchange reverted to the old trading system (KATS).
In May, the stock market made history as trading volumes hit a record high of two billion shares.
The stock market has seen a total of eight Initial Public Offerings (IPOs) – six on the motherboard and two on the Growth Enterprise Market (GEM) board. The total amount raised by the IPOs was around Rs20 billion.
Overall, however, the market performance remained sluggish.
Stock analysts predict that the benchmark KSE-100 will generate a 25% overall return in 2022 through sustained economic growth.
“We expect the local stock exchange to reach 55,000 points by December 2022,” said Shahid Ali Habib, CEO of Arif Habib Limited (AHL), at the launch of “Pakistan Strategy 2022 – A Delicate Balance” .
“Our index objective is based on mapping target prices, justified P / E (Price-to-Earnings) multiples and earnings growth. Our forward P / E for CY22 is 4.9x, which is lower than the last ten-year P / E of 8.3x, while earnings growth is expected to reach 12.4%. ”
Analysts also expect the Pakistani stock market to return to its previous status as the best-performing market, which it reached in 2016-17, and generate higher returns next year.
Hashemy added that the direction of the stock market in 2022 will depend on the direction of international commodity prices, the full contours of the IMF’s program, and the implementation of the necessary set of monetary and fiscal measures.
In addition, the exchange is expected to welcome eight new companies and list their shares for trading next year. These companies are estimated to raise equity worth around Rs 14-15 billion through IPOs in 2022.
“The stock exchange could see the biggest private sector construction industry IPO if the stock market performs well as expected,” Habib said.
According to AHL research director Tahir Abbas and economist Sana Tawfik, the stock market is expected to perform well in 2022 after macroeconomic indicators such as inflation and the current account deficit stabilize from February 2022.
The brokerage has chosen exploration and production, banking, cement, steel, petroleum marketing companies, textiles and automobiles as sectors that will remain in the limelight in 2022.
Regarding the exploration and production sector, the research house predicted the resolution of the circular gas debt and the stability of international oil prices. Moreover, he said the depreciation of the rupee against the US dollar will keep this sector in the spotlight.
In the banking sector, he predicted significant growth in deposits citing rising interest rates that would keep the sector’s profits high.
AHL said the cement industry will experience pricing discipline associated with growth in domestic shipments, a reversal in international coal prices, and a higher allocation from the Public Sector Development Program (PSDP) is expected to boost business results. cement plants.
In the steel sector, it is said that strong pricing power, strong recovery in demand without any threat from imports and inventory gains will increase profits.
In the textile segment, he forecast continued growth in export orders amid government incentives for export-oriented sectors and expects margins to remain positive.
And for automobiles, he predicted that high pricing power, higher tariffs on CBU (fully built) units, and robust demand amid growing economic growth would increase auto sales.