RDAs: experts urge investment in PSX, say market will bounce back

Expecting a return to normalcy, market experts have urged overseas Pakistanis to enhance their investment in Roshan Digital Accounts (RDAs), especially in the equity market.

Launched in September 2020, the RDA is an initiative of the State Bank of Pakistan (SBP) for Non-Resident Pakistanis (NRP), formed in collaboration with commercial banks operating in Pakistan.

It allows NRPs to open an account without requiring physical presence either in Pakistan or in any embassy or consulate. It has also facilitated NRPs in banking, payment, and investment activities in the country.

As per the latest data provided by SBP, Pakistan’s RDA inflows reached $3.382 billion at the end of January 2022. Till date, 342,611 accounts have been opened from across 175 countries during the 17-month period.

However, out of the overall $3,382 million deposited in RDAs, $2,319 million or almost 68.6% has been invested in Naya Pakistan Certificates (NPCs), data shows. Within NPCs, $1,278 million has been invested in conventional certificates, while $1,041 million has been invested in Islamic.

A meagre amount of $34 million has made its way into the Pakistan Stock Exchange (PSX) through RDAs as of January 2022.

Roshan Digital Account: cumulative inflows reach $3.38 billion

In a webinar earlier this week, arranged by Meezan Bank in collaboration with Arif Habib Limited, AKD Securities, and Central Depository Company of Pakistan (CDC), CEOs and experts discussed the opportunities offered by Pakistan's equity market.

Farid Alam, Chief Executive Officer at AKD Securities, said data shows a majority of the investment has gone towards NPCs mainly due to instability of the Pakistan's rupee.

“The rupee has significantly lost its value in the past 12 months, much to the concerns of the investors, whose returns on investments shrink due to exchange loss,” he said.

However, Alam added, that stability will return, as economic fundamentals remain intact amid positive indicators including high corporate profitability witnessed last year, “which is good news for both local and expat investors”.

Alam said that the market's price-to-earnings ratio currently stands at 4.6x.

“Currently, market valuations are very cheap, but it will move towards its median,” he said.

He added that overseas Pakistanis can also invest in Sukuks and other Islamic instruments offering low risk.

Meanwhile, Shahid Ali Habib, CEO Arif Habib Limited (AHL), said that the market has 7-8 Triple A rated Sukuks available worth $450-475 million, offering 5-7.5% return.

“We believe being in the International Monetary Fund (IMF) programme, our financial needs are mapped out,” said Habib.

Arif Habib Limited expects KSE-100 to make history next year

On market outlook, the AHL CEO said that corporate earnings are high, while valuations remain low. "The index will move towards its mean - this means a P/E of 8x," he said.

Meanwhile, Alam had similar views about the bourse improving in the coming months on the back of positive triggers, “including a drop in commodity prices, and Pakistan's expected removal from the Financial Action Task Force grey list”.

He added that the classification of Pakistan to MSCI Frontier market will also revive foreign investment.

Meanwhile, CEO Central Depository Company (CDC) Abdul Samad said that the Pakistan equities market offer high potential.

“We should attract more overseas Pakistanis to invest here, as RDAs offer high returns.”

KSE-100's performance

The KSE-100, a benchmark for market performance, has remained range-bound so far in 2022, staying in the 45,000-46,000 range.

KSE-100 Index has underperformed despite record volume, IPOs

In 2021, the index was up only 2% in Pak Rupee term and down 8% in $ term, much lower than last 30-year CAGR of 12%.