Despite budget-related uncertainties and geo-political situation, the KSE-100 index increased by 65.61 points, or 0.54 percent in the month of May 2011 to close at 12,123.15 points from April closing of 12,057.54 points.
Analysts said that the month of May was mostly regarded as a lull period as far as activity at the equity market went. Looming budget-related uncertainties are generally held responsible for parking investors off the investment path with observably dead-low volumes.
In the same vein, this May 2011 has turned out to be quite in line with historical lows in terms of average volume that, however, ended with a positive note though a negligible 50bps on month-on-month basis (MoM) return during the month, said Khurram Schehzad, head of research at Invest Capital and Securities.
Market volumes were slashed down by a significant 24 percent on a MoM basis, and recorded a greater fall of 32 percent when compared to May of last year to only $28 million. On the other hand, the KSE-100 index provided a solid 30 percent return (21 percent YoY in $ terms) when weighed against May 2010 index level.
However, better equities performance towards late May 2011 can easily be attributed to rising investors' excitement on high prospects of either a change in the newly imposed Capital Gains Tax (CGT) with other more acceptable and less-irritating forms of withholding tax, he said.
Dusting out historical files shows KSE-100's return during May (over last decade) had averaged at negative 5 percent, while KSE-100 yielded a positive 0.5 percent this time round (98bps in $ terms) during May 2011. Market average volumes, however, slumped to lowest in the last decade with only $27 million (average 69 million shares only) during May 2011. Such faint market activity chained with marginal return from equities during May has become worse this year primarily on account of untimely imposition of the notorious CGT on equities in the budget FY11 which served no purpose but to put investor activity to an immediate death.
The month of June has historically seen an encounter most of the time to May's dim performances with regard to equities in Pakistan. Because clouds of budget uncertainty shed and relatively improved level of investor confidence along with gradual acceptance of the budgetary measures play in. During the last decade, market experienced month of June showing average return of 3 percent on MoM basis, with volumes rising, except last year when the sword of CGT was bared.
In regional contest, Pakistan's equities stood among top 4 yielding markets in the Asia Pacific region (with only 98bps decline in $ terms against Asia Pacific's average of 3 percent) in May 2011. Even better, though at much smaller scale, Pakistan's equities stood among top 3 equity markets standing in the green zone as far as foreign flows towards equities are concerned (receiving $26 million net inflows during May 2011 totalling $72 million year-to-date (YTD), as against Asia Pac's total net outflows of $4.7 billion in May 2011 slashing net flows to $3.1 billion (YTD).
It is worth mentioning that only in Apr 2011 net inflows to Asia Pac region stood at a whopping $11.5 bn (which has greatly been swept out of region, except Pakistan and a few others).
He said a mix of oil, power and banks outperformed the market during May 2011. A pro-equities budget is expected to be in the offing this time round, given that equity market now stands with a professionally equipped stakeholders' team with high level SECP personnel having deep acumen on capital markets, which is expected to have a mark in the budget FY12 and government itself is in dire need of funds to keep its fiscal affairs going (through privatisation, listings and offloading of existing stakes). Therefore, budgetary measures, if come out to match investors' expectations may provide much needed impetus to market activity from June 2011 onwards.
"We maintain our positive long-term stance on the market with December-end index target at 13,500 points level offering an upside of 11 percent from current levels", he said.