Fairway Associates – Bargains To Be Had in Pakistan Stocks
The Karachi Stock Exchange 100 Index recently gained over 2 per cent to its highest level in eight months, after the country’s long-term sovereign credit rating was raised one level to B- from CCC+ by Standard & Poor’s with a stable outlook. Fairway Associates said it maintained its target of 9,000 for the index by yearend.
The emailed note from Fairway Associates analysts informed clients that fundamentals in Pakistan have started to improve; foreign exchange reserves have tripled to almost $13 billion from $4 billion in October while inflation has halved from a peak of 25.3 percent in August last year to 11.2 percent in July 2009.
Fairway Associates analysts are confident that Pakistan is the most undervalued market in the whole of Asia. They stated that valuations in Pakistan look compelling on virtually every metric and that the fact that the 142 per cent discount on Pakistan stocks is almost five times the discount that Thailand, the second-most undervalued market, trades at.
Pakistan’s price to book ratio is 1.91 times versus Asia’s 1.86 times, while Pakistan’s relative return on equities at 26.7 percent compares to Asia’s 11 percent, the Fairway Associates note said. The current 142 percent discount is close to the biggest in history of 177 percent.
Key risks to the prediction for Pakistan stocks include political instability and higher costs for oil, which accounts for a third of the import bill and may add pressure to the current account, Fairway Associates said.
Pakistan’s balance of payments deficit narrowed in the first month of the new fiscal year, according to figures posted on the nation’s central bank Web site on Aug. 20. The deficit in July declined to $606 million from $1.18 billion a year earlier, data referenced by Fairway Associates showed.
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