Is Pakistan Stock Exchange currently overvalued?

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nomi king 9 months 1 Answer 146 views

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  1. Amid there was exuberance of investors at the Pakistan Stock Exchange as it tossed the KSE-100 Index above 50,000 last week.
    One must understanding that KSE-100 index, now at the dizzy height of 50,000 points, having recovered from an eight year old shock that had sent it spiraling downwards to under 5,000 points, is something to reckon with.
    The apex regulator, the Securities and Exchange Commission of Pakistan (SECP), has rushed onto the deck to tighten the ropes.
    Chairman SECP held out an assurance that there was no likelihood of a market crash as the SECP’s Systemic Risk Department was active in market surveillance and monitoring; though he warned individual investors of blindly grabbing stocks in a quest for quick profits and released guidelines for them to trade with caution.
    Giving a substantial return of 46pc last year—the highest among Asian peers and the fifth best among global markets — investors with savings have nowhere to go but the capital market at the far corner of I.I Chungdrigar Road in Karachi. One must realize that The equity boom up until last year owed itself to corporate earnings, while the market is now liquidity driven
    The Chinese consortium’s entry as the buyers of a 40pc strategic equity stake, signed and sealed a fortnight ago, has acted as a sweetener.
    The consortium won by placing the highest bid of Rs28 per share for 320m shares at the total price consideration of Rs8.96bn, when the stake was put on the table in winter last year. It comprises the Chinese Financial Futures Exchange Company Ltd (lead bidders), Shanghai Stock Exchange, Shenzhen Stock Exchange, and two local partners: Pak-China Investment Company and Habib Bank Ltd.
    Last Wednesday, the SECP also directed ‘existing companies other than public sector companies and multinational companies’ to enhance their ‘free float’ to 25pc of the total issued shares and 5m shares in free float by Jan 03, 2018, where the companies fell short of that minimum limit.
    Nasim Beg, Vice Chairman, MCB-Arif Habib Savings says that the equity boom up until last year owed itself to corporate earnings, while the market is now liquidity driven. Market analysts have been feverishly estimating the cash that is waiting to enter the market.
    Expert feel “The continuation of the current low interest rate environment will benefit local equities where we see flows from Mutual Funds and Non-Banking Financial Companies continue this year as well”. Further, there is now a strong likelihood of an amnesty scheme in 2017, which would be along the lines of the one implemented in Indonesia in July 2016 that fetched around $10bn in the Indonesian economy. I don’t think this will happen as many amnesty scheme announced in Pakistan but PSX hardly have witness any liquidity pumped in to it. On the other hand investment in securities is pouring up. So one cannot mislead with this norms any further. Hardly there is a economic KPIs recommend the upsurge in stock prices. If international oil prices see little upward drive there is strong possibility of nose dive in index of stock market.
    There are more inflows that most market gurus are looking for. The PSX can expect foreign buying of $100-200m worth stocks, following the market’s reclassification to MSCI Emerging Markets in May this year, regardless of the huge outflow of $339m in 2016. Analysts add to that the $100m stockbrokers would receive against sale of 40pc PSX shares to strategic investors and 20pc stock to the public in an upcoming initial public offering (IPO).
    Prognosis visualizes great growth potential for the PSX going forward. “The Chinese consortium is expected to bring in investment, experience, technological assistance, new products and cross listings” he says, adding that it would enhance the PSX brand profile and give it an international image. These may prove dreams.
    There are just around 2,50,000 account holders and only 558 listed companies was too small a base for the PSX, when compared to 50m investors and 5,900 companies on roll on the market on Dalal Street.
    There is a immediate need for a proactive role of the SECP and the PSX in speeding up the process of market reforms along with member co-operation in understanding that much of what is happening is a ‘win-win’ situation for all. Otherwise elasticity of balloon will end up with a big burst.

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