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Karachi, January 01, 2014 (PPI-OT): Equities: 2014 unfolds another chapter of growth story!
According to Arif Habib Limited,
Below is an excerpt of Arif Habib Limited’s detailed Strategy Report to be released shortly.
Pakistan’s Politics 2014
Pakistan’s politics finally enters a stable mode after 2013 general elections, when the change for a better Pakistan came finally through the vote. With such historic political shift, in-time transitions of the other two most powerful positions of the country’s key institutions recently: Military (Chief of the Army Staff) as well as Judicial (Chief Justice) further set stage for increased confidence and perception change for the country.
Peaceful democratic political transfer, political maturity and judicial activism have started bearing fruits when Pakistan significantly improved on global corruption perception index. With 2014’s sunset, though the govt looks set to implement its economic agenda and other reforms, it is faced with a plethora of political challenges (relations with India, political harmony on peace dialogue with indigenous militant groups as well as drone attacks and subsequent relations with the US post its withdrawal from Afghanistan ahead).
Pakistan’s Economy 2014
Pakistan economy has been resilient throughout most of its history in the sense that, despite being repeatedly hit by a multitude of shocks that tried to influence its underlying growth potential, its growth was in par with region.
With the new democratic transition in full swing (PML-N’s simple majority), the govt is aggressively pursuing fiscal austerity measures while simultaneously uplifting investment growth. Arif Habib Limited expects reforms to pick-up pace in 2014 to turnaround economic growth ahead on a sustainable basis albeit with moderate growth in the short-to-medium term.
Pakistan Equities 2014
Despite back to back returns of 49% each for 2012 and 2013 (total 123%, 90% in USD since 2012), KSE100’s deep discount to regional peers remains (43% on PE, 43% on Ev/EBITDA, 52% on PEG, 14% on PBV, and a fat 47% on DY while a sizeable 39% on RoE) as global equities have been on the rise too.
Arif Habib Limited believes, this is a great deal to counterbalance perceived macro risks of i) rising inflation and thus interest rates, ii) one of the lowest economic growth rates, and iii) currency volatility, chained with other macro risk-associated premiums. KSE looks all set for yet another eventful bull run in 2014 when a set of macro reforms are expected to take place in full swing.
KSE100 Index Target at 30,727pts; 22% return in 2014!
Adjusting prevailing regional discounts to historical levels (average discount ranging 14%-52%), chained with justified PE/PEG, Earnings Growth and the Target Price models, gives a weighted average index target of 30,727pts, another solid jump of 5,466pts expected by 2014-end, with a total return of 22% YoY. Conversely, higher Alphas can be achieved, and Betas minimized, through timely rebalancing of recommended portfolio containing EandPs, Cements, Textiles, Telecom, OMCs and Fertilizers alongside cherry-picking from the FMCGs and Pharma sectors. Arif Habib Limited recommends overweight stance on a select of stocks from these sectors that are expected to drive index to the estimated levels in 2014.