The KSE-100 index increased by 28 percent or 2635.54 points during 2010 to close the year at the level of 12,022.46 points from previous year's closing of 9,386.92 points. Trading, however, remained very low during the year as the average daily volume at ready counter declined to nine-year low level. The average daily volumes stood at 121 million shares, 29 percent less than previous year's average daily trade.
"Although, issues such as the Greece crisis, prolonged confusion over the implementation of CGT and concerns over the flood losses kept the market under pressure for most of the first three quarters, strong foreign inflows and recovery in corporate earnings led to strong market performance in the final quarter with the index witnessing more than 71 percent of the gains in last three months of the year", Umer Bin Ayaz, an analyst at JS Global Capital said.
Despite a challenging 2010, KSE's lower than average historic gains in 2010 seem impressive when compared to the performance of Asian Emerging Market which posted an average return of 22 percent for the year, he said.
However, it under-performed, compared to the average 51 percent gains made by the regional frontier markets including Sri Lanka, Bangladesh and Vietnam, he added. Among key sectors, oil and gas remained top performer with return of 41 percent. "We believe the sector's performance is mainly backed by strong foreign interest in OGDC during the year", Umer said.
Chemical sector stood as the second best performer among heavyweights, posting 33 percent growth in its market cap. Banks on the other hand were up only 7 percent mainly due to weak credit offtake and investor fears over a fresh wave of non-performing loans (NPLs) post the floods. Among other blue chips, Auto and Construction Materials also posted single-digit returns of 8 percent and 4 percent respectively.
Foreign funds remained the most active participants, outpacing local players who had primarily been caught up with liquidity concerns - especially in the absence of a leverage product. A net inflow of $522 million of foreign portfolio investment was recorded in 2010. "Based on the latest available figures, foreigners now hold around 32 percent of the market's free-float, equating 7.8 percent of total market cap (from 4.45 percent in March 2009)", Umer said.
On the other hand, companies and mutual funds among local participants were the key sellers with net selling of $166 million and $129 million respectively. "Post a difficult 2010, we maintain a positive view on the market, on the back of foreign inflows, strong FY11 earnings growth, potential introduction of leverage product and post flood reconstruction activities", Umer said.
From the valuation perspective, the KSE-100 index is still trading at a deep 38 percent discount to the region, he said. Also, in comparison to its own 14-year historical average PE multiple of 10.9x, it is presently trading at a 23 percent discount, he added.