The impressive return(s) of KSE

Anybody and everybody who invest have been awed by the activity seen at the Karachi Stock Exchange in recent months. With pre and post-election optimism being a major drive behind the recent rally, the KSE has been making splashing headlines in the media.
However, the interesting bit about KSE that gets little media attention is how it has consistently beaten its global peers as well as key commodities since the beginning of the 2012, a time when no such expectations of pro-business government existed.
This growth period essentially kicked off when the capital gains tax was modified and shelved. And since then there has been no stopping to KSEs northward rally. At the same time, investors also rushed to the bourse as interest rates started going down, somewhat similar to what its like in the US.
Why the local bourse has outperformed the commodities has more reasons than just an improvement in local fundamentals. For instance negligible recovery in the global economy, especially the eurozone, has dragged investment in gold and oil.
Similarly, price-to-earnings multiple of 7.5 times at the beginning of 2012 also made local stocks cheaper compared to the pricey regional stocks trading at approximately 11 times, and hence has let KSE on the loose.
This brings up another interesting bit to the KSE rally; this growth trajectory of 2012 did not translate to the foreign portfolio investment. While foreign portfolio investment stood at $299 million for April and May 2013, it was not swarming to the local market in 2012. FIPI inflows were a meager $122 million between Jan-Dec 2012.
If the market has been performing so well for more than a year now, outperforming the regional stock as well as commodities, does this mean that the international sales have been ineffective in attracting foreign investors to the local bourses?
Perhaps not exactly; even though the market has been trading a cheap multiple between 7.5 and 8 since January 2012, there are other factors that stopped the foreign investors from coming in. One cannot rule out the poor governance, deteriorating energy crisis and security situation as immediate hurdles for foreign investment, all of which are now hoped to be resolved somewhat.
Qasim Ali Shah, Head of international sales at AKD, pointed out that demutualisation of the KSE in August 2012 was also an important factor in building confidence of the foreign investors in the local market since then. Democratic consolidation is also a booster for foreign confidence, Shah added.
With hopes pinned on the PML-N government to resolve the crises and bring about better governance, equity pundits expect an upside 24000-25000 levels in benchmark KSE by the end of 2013; some even expect a level of 26000-27000 points. If that is really going to be the case, then perhaps the brides-to-be should be buying into KSE instead of gold.