Download Pakistan Capital Markets and the IMF

Pakistan Capital Markets and
the IMF - Friend or Foe?
Adnan Afridi
Managing Director
Karachi Stock Exchange
1
The Pakistan Economy
Inflation
hit all
time high
Elections
meant that
key economic
decisions were
not made
Commodity
prices hit all
time high –Oil
reached $147
per barrel
Foreign
Investment
Outflow
Rupee
under
pressure
Capital
flight – foreign
exchange
reserves
declined
Investor
confidence
declined
2
Impact on the Capital Market
Exchange was forced to
act and impose floor on
Aug 27 prices to provide
a cooling down period to
the market
Source: KSE Research
•
•
2008 average daily volumes were around 50% below average daily volumes of 2007
2008 average daily values were also around 50% below average daily values of 2007
3
The KSE 100 Index was one of the worst performing markets of 2008
COUNTRY
INDEX
Jan 1 2008 – Dec 31, 2008
(Local currency)
UK
FTSE 100
-31.3%
Kuala Lumpur
KLSE Composite
-39.3%
US
Nasdaq Comp.
-40.5%
Seoul
Composite
-40.7%
Tokyo
Nikkei 225
-42.1%
Taiwan
T. Weighted
-46.0%
Bangkok
Set
-47.6%
Hong Kong
Hang Seng
-48.3%
Singapore
Strait Times
-49.4%
Jakarta
Composite
-50.6%
Bombay
Sensex
-52.4%
KSE
100 Index
-58.3%
Shanghai Comp.
-65.4%
Source: China
KSE Analysis
Source: KSE Research
Key Reasons for Market Decline
Exchange Rate US$1
Reserves at SBP
Inflation
Foreign Investor Portfolio
Investment
Oil Prices
May ‘ 08
August’08
Rs. 66.25
Rs. 75.81
US$ 11.9 billion
US$ 5.76 billion
19.3%
25.3%
Jan – May 08
US $115 million
(outflow)
Jan – August 08
US$ 332 million
(outflow)
US$ 111.91
US$ 118.15
(reached US$ 147 in May- June)
Source: KSE Research
•
•
•
Interest rates registered a 500 basis point increase in 2008
Fear amongst investors of policy changes that could impact viability of listed
companies (media speculation has contributed to these fears).
Last year of previous government, care-taker government and transition period of
current government has meant a 18 month period where key decisions with respect to
economy were not taken (e.g. removal of subsidies, reduction in govt. borrowing, etc.)
5
Enter the IMF
6
Key Features of IMF Program
•
Homegrown package
•
Pakistan received a US$ 7.7 billion loan from the IMF on November 24, 2008
•
Pakistani Government and Finance Officials in consultation with IMF set the main
parameters and criteria on which performance would be assessed.
– Real GDP growth of 2.5% for 2008-09 and 4% in 2009-10
– Annual average CPI of 20% in 2008-09 and 6% in 2009-10
– Current Account deficit of 6% of GDP in 2008-09 and 4.5% in 2009-10
– Authorities to adopt a tax policy and tax administration plan
– Elimination of tariff differential subsidies by end June 2009
– SBP to prepare contingency plan on how to deal with problem banks
– Provision of Foreign Exchange by SBP for imports of furnace oil to be ceased
Source: KSE Research, IMF Country Report No. 09/123 April 2009
7
The Day After…
8
Key Indicators have started to rebound
Pre IMF Program
Post IMF Program
Current
Credit default Spread
on Sovereign Debt
5000bps
1700bps
Exchange Rate US$1
Rs.60 <US$ 1<Rs. 79
Rs. 80-81
Reserves at SBP
US$ 3.5 billion
US$ 7.1 billion
Inflation
25.3 % (Aug 08)
17.2% (Apr 09)
15%
14%
Jan- Mar 2009
US$ 238 million
(outflow)
April – May 2009
US$ 37 million
(outflow)
Discount Rate
Foreign Investor
Portfolio Investment
Trend
Stable
Stable
Source: KSE Research
9
KSE 100 Index has made a recovery from the 5000 point level to
close above 7100 points on May 26, 2009
Source: KSE Research
•
Domestic and Global Investor Confidence has been improving
•
Oil prices have fallen to US$ 50 per barrel from the US$ 147 mark
•
Food prices have also registered a steep decline
•
Liquidity has begun to flow back into the market – average daily volumes for 2009 are
182 million
•
KSE Market Capitalization has increased by Rs. 269 billion since January 1, 2009
10
The Market has rebounded in 2009
COUNTRY
INDEX
Jan 1 2009 – May 26, 2009
Taiwan
T. Weighted
45.56%
China
Shanghai Comp.
42.17%
Bombay
Sensex
40.94%
Jakarta
Composite
37.05%
Singapore
Strait Times
27.09%
KSE
100 Index
22.37%
Seoul
Composite
22.02%
Bangkok
Set
20.61%
Kuala Lumpur
KLSE Composite
19.95%
Hong kong
Hang Seng
18.10%
US
Nasdaq Comp.
7.29%
Tokyo
Nikkei 225
5.09%
UK
FTSE 100
2.45%
Source: KSE Research
Opportunities and Challenges that
the IMF Program presents to Pakistan
Challenges
Opportunities
Lower Growth/Lower companies
dividend
Equity more attractive than debt
(could boost listings)
Tight monetary policy – could lead to
company defaults
Macro economic stability attracts global
portfolio investment
Consumer to put up with a reduction
in subsidies; could create social
instability
Government removal of subsidies to create
fiscal balance (focus on development
spending can spur growth)
Lower spending
Reduction in government borrowing to
lower inflation (all asset classes to benefit
from lower inflation)
12
Future Plans of KSE
The following are in process:
• Demutualization of the Exchange – publically listed with strategic
investor
• Promotion of Derivative Products
• New Services (Data Vending)
• Debt Market Trading Platform
• Investors education programs
(road shows, seminars &
online training)
Pakistan’s story: A Resilient Nation, A Resilient Economy
Pakistan’s economic and political development
Source: BMA Research
GDP Growth has averaged over 5% since 1951 on the
back of fundamental growth drivers
14