Pakistan stocks may advance
Tuesday, 25 August 2009
ISLAMABAD, Aug. 24 (Bloomberg): Pakistan stocks, Asia's cheapest, may rebound as falling inflation and the tripling of foreign exchange reserves help to boost the nation's equities, Credit Suisse Group AG said.
The Karachi Stock Exchange 100 Index gained 2.4 per cent to 8,298.29 as of 1:23 p.m. local time today, its highest level in eight months, after the country's long-term sovereign credit rating was raised one level to B- from CCC+ by Standard & Poor's with a stable outlook. Credit Suisse said it maintained its target of 9,000 for the index by yearend.
"Fundamentals" have started to improve, analysts led by Sakthi Siva at Credit Suisse said in a note today. Foreign exchange reserves have tripled to almost $13 billion from $4 billion in October while inflation has halved from a peak of 25.3 per cent in August last year to 11.2 per cent in July 2009.
"On virtually every valuation metric, Pakistan's valuations look compelling versus the rest of Asia," Siva said. "Not only does this make Pakistan the most undervalued market, but the 142 per cent discount is almost five times the discount that Thailand, the second-most undervalued market, trades at."
Pakistan's price to book ratio is 1.91 times versus Asia's 1.86 times, while Pakistan's relative return on equities at 26.7 per cent compares to Asia's 11 per cent, the note said. The current 142 per cent discount is close to the biggest in history of 177 per cent, the note said.
Key risks to the prediction for Pakistan stocks include political instability and higher costs for oil, which accounts for a third of the import bill and may add pressure to the current account, Siva said.
Pakistan's balance of payments deficit narrowed in the first month of the new fiscal year, according to figures posted on the nation's central bank Web site on Aug. 20. The deficit in July declined to $606 million from $1.18 billion a year earlier, the data from the central bank showed.
Pakistan's discount rate has been cut 2 per centage points to 13 per cent and more rate cuts are expected, Siva said. Earnings estimates have also stabilized after 10 consecutive months of downgrades, Siva said.
S&P cited the International Monetary Fund's additional bailout for the latest rating.
"The upgrade reflects Pakistan's improved external liquidity position, coupled with its successes in implementing corrective policy measures to rectify an unsustainable fiscal trajectory," S&P said in a statement today.
The IMF this month increased Pakistan's loan package to $11.2 billion, approving an extra $3.2 billion. That prompted Moody's Investors Service to raise its outlook on the South Asian country's debt ratings last week to stable from negative.
Credit Suisse's top recommendations include Oil & Gas Development Co., the country's biggest fuels explorer, Pakistan State Oil Ltd., the nation's largest fuel retailer, Pakistan Petroleum Ltd., the No. 1 gas producer, United Bank Ltd., the No. 3 bank by assets, and Engro Chemical Pakistan Ltd.
The Karachi Stock Exchange 100 Index gained 2.4 per cent to 8,298.29 as of 1:23 p.m. local time today, its highest level in eight months, after the country's long-term sovereign credit rating was raised one level to B- from CCC+ by Standard & Poor's with a stable outlook. Credit Suisse said it maintained its target of 9,000 for the index by yearend.
"Fundamentals" have started to improve, analysts led by Sakthi Siva at Credit Suisse said in a note today. Foreign exchange reserves have tripled to almost $13 billion from $4 billion in October while inflation has halved from a peak of 25.3 per cent in August last year to 11.2 per cent in July 2009.
"On virtually every valuation metric, Pakistan's valuations look compelling versus the rest of Asia," Siva said. "Not only does this make Pakistan the most undervalued market, but the 142 per cent discount is almost five times the discount that Thailand, the second-most undervalued market, trades at."
Pakistan's price to book ratio is 1.91 times versus Asia's 1.86 times, while Pakistan's relative return on equities at 26.7 per cent compares to Asia's 11 per cent, the note said. The current 142 per cent discount is close to the biggest in history of 177 per cent, the note said.
Key risks to the prediction for Pakistan stocks include political instability and higher costs for oil, which accounts for a third of the import bill and may add pressure to the current account, Siva said.
Pakistan's balance of payments deficit narrowed in the first month of the new fiscal year, according to figures posted on the nation's central bank Web site on Aug. 20. The deficit in July declined to $606 million from $1.18 billion a year earlier, the data from the central bank showed.
Pakistan's discount rate has been cut 2 per centage points to 13 per cent and more rate cuts are expected, Siva said. Earnings estimates have also stabilized after 10 consecutive months of downgrades, Siva said.
S&P cited the International Monetary Fund's additional bailout for the latest rating.
"The upgrade reflects Pakistan's improved external liquidity position, coupled with its successes in implementing corrective policy measures to rectify an unsustainable fiscal trajectory," S&P said in a statement today.
The IMF this month increased Pakistan's loan package to $11.2 billion, approving an extra $3.2 billion. That prompted Moody's Investors Service to raise its outlook on the South Asian country's debt ratings last week to stable from negative.
Credit Suisse's top recommendations include Oil & Gas Development Co., the country's biggest fuels explorer, Pakistan State Oil Ltd., the nation's largest fuel retailer, Pakistan Petroleum Ltd., the No. 1 gas producer, United Bank Ltd., the No. 3 bank by assets, and Engro Chemical Pakistan Ltd.