A compelling case for investors – by Ali Wahab

Source: Express Tribune, October 4, 2010

Towards the end of 2006, Dubai was an investor’s (read: speculator’s) paradise. The stock market was recovering after a correction in the beginning of 2006 and the property market was like hot cakes. Real estate consultants were leading a ‘show me the money’ kind of life and high net worth individuals were being created everyday on the back of ever increasing property prices.

Initial Public Offerings (IPOs) of companies on Dubai and Abu Dhabi markets were being welcomed with open arms, irrespective of valuations. A case in point being the DP World listing which was oversubscribed by 15 times at a premium of $1.2 per share and forward PE (price to earnings) of 61 times!

Other such IPOs included Ajman Bank which was oversubscribed by 60 times and opened at 5 dirhams per share against a par value of 1 dirham.

But as the cliché goes, all good things must come to an end and the bubble burst around the third quarter of 2008 – a lot has been written about the Dubai dream and more need not be mentioned here.

Meanwhile, just one time zone east, Pakistan was facing its own problems after the KSE-100 index peaked at 15,676 points in April 2008. The stock market faced its biggest ever liquidity crunch. A floor was imposed and no one was willing to invest expecting the market to crash whenever it was removed. And that is what exactly happened.

A public fire-sale followed and whoever bought at that time must be sitting pretty today. What was unique at that time was the market began picking up through cash investors. There was no or little leverage available. Companies like OGDC at their lowest price of Rs40.75 (January 26, 2009) were trading at a PE of 3.15 times and offering a dividend yield of 20.2 per cent. Buying blue chips like PPL, POL, PSO, Shell, Engro, FFC and many more could not have gotten any better for investors. Based on the corporate sector earnings growth, which stood at more than 10 per cent in 2009, the KSE-100 index ended 2009 at 9,386 points, up 95 per cent from its lowest point on January 26, 2009.

Although the market is still up by 6.3 per cent till September 28 this year, it could have peaked much more. Foreign money has flown in and asset managers like Templeton and Lazard look at Pakistan positively but the biggest problem is the crisis of confidence we exude to the world.

How can we sell Pakistan as a compelling case for investment when our media daily gives out unsubstantiated reports about the fall of government, tussles with judiciary and the corruption mantra?

“Pakistan has too much instability,” is the typical response one gets while trying to make a compelling case for investment in the country – if only the media, judiciary, opposition and government would realise how these tussles are affecting us on the economic front. They seem to have forgotten that perception is reality.

With rumours of change of guard in the capital and the aftermath of the floods that ravaged the country, our stock market could have easily been down by 25 or 30 per cent after touching the high of 10,600 points in April this year. However, that has not happened. The market is resilient and shows resistance at around 9,500 levels.

The 9,500 points level has been tested at least twice during the year and we see a rebound. If only we are able to sort out image-related issues and operational problems such as the capital gains taxation and leverage, the market should take off.