Thursday, December 14

US Fed Plan of $600Bn Bond Purchase to Bode Well For Emerging Equity Markets

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The plans announced by US Federal Reserves of $600 billion bond purchase will generate demand for cheap markets, as the liquidity would have to find destinations, and attract more inflows in emerging equity markets, particularly, Pakistan.

In spite of economic slowdown and security issues, better than expected recovery after the devastating floods will help corporate earnings in Pakistan. And that is why analysts believe this will induce foreigners to invest in Pakistan stocks.

“Our clients abroad have endorsed large-scale investments in Pakistan,” said Mohammad Sohail, Chief Executive Officer of Topline Securities.

Pakistani market offers over 40percent discount compared with regional markets. Though the political and economic risks need some reduction in multiples, but the discount seems high in light of the fact that corporate earnings are finally improving.

Khurram Schehzad, Head of Research at Invest Capital said that the US Fed’s plan would definitely bode well for local bourse.

“Whenever there is excess liquidity in developed world, the flows rush towards less developed markets, which offer good returns, such as Pakistan”.

He said that the market was improving with rising volumes and that was not only because of foreign inflows, the fundamentals were also improving.

Amongst the frontier markets as defined by MSCI, Pakistan’s one year forward PE of 7.3x, is at an abnormal discount to two other frontier markets; Sri Lanka and Bangladesh of Asia besides Vietnam.

Foreigners that have been investing in Sri Lanka and Bangladesh at a time when they trade at PE of 20x plus, will revisit Pakistan, analysts believe.

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