Ample cash and low interest rates will push domestic investors to equities and around $1.5 billion fresh liquidity is expected approaching Pakistan''s stock market in 2017, analyst said. "Not only the country would reclaim its spot in the MSCI EM club, where historically all the foreign inflow estimates have proven to be underestimates, we see even larger pool of liquidity heading towards the stocks from the local front," Zeeshan Afzal, Executive Director - Research at Insight Securities said.
He estimated a total of $1.0-1.5bn fresh liquidity in the stock market next year including $300-500 million flows linked to MSCI EM funds, $140-220 million liquidity inflow to brokers after PSX divestment, net inflow of Rs 540 billion ($5 billion) to banks after PIBs maturity being invested in T-bills or stocks, new funds flows to mutual funds that have received over Rs 40 billion ($380 million) in last 6 months, booming insurance business especially life insurance, and likely amnesty to real estate which could bring HNWIs towards documented sectors including stock market.
With positive news flows all around and large funds inflow, market price multiples re-rating towards its justified levels would be inevitable, which would also provide a conducive environment for IPOs. "We see smooth sailing to our Jun 2017 estimation of KSE-100 trading between 45,000-50,000 levels. We also see dust settling down on the political front though tough economic variables (pressures on PKR) may have their impact on the market," he said, adding that at present, KSE-100 index is trading at forward P/E of 9.8x, at more than 20 percent discount to average MSCI EM index price multiple.
He said liquidity in Pakistan stock market was a worry for all seasons since after ''floor rule'' in 2008. However, the continuous reforms at PSX, improved economic outlook and 60 percent return of KSE-100 since 2014 have restored confidence of every investor class.
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