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PIF stock up 48.8pc in dollar terms

RECORDER REPORT

KARACHI: The Pakistan Investment Fund Inc, managed by Morgan Stanley Dean Witter Investment Management, was up 48.8 percent in terms of dollars in 1999 because of improved performance at the Karachi Stock Exchange.

Nadeem Naqvi, head of investment research at International Asset Management Company Ltd, adviser to the Pakistan Fund, says that the improved performance has been possible due not only to the significant rise in Pakistan stocks but also because of a more active management stance in asset allocation, greater sector rotation and increased emphasis on market timing than previously. "We started 1999 with around 10 percent cash and ended the year with less 5 percent cash holdings", he said.

In January 2000, Pakistan has been the best performing market, rising by over 24 percent. According to Nadeem, the market is being re-rated domestically. He says that this re-rating is "being driven by easy liquidity and lower interest rates" engineered by the central bank as well as rising expectations of greater political stability on the domestic front.

"Additionally, economic growth prospects are also improving and healthier corporate balance sheets are beginning to gradually get translated into industrial expansion."

He mentioned that the textile sector was taking the lead in this. Giving examples, he said: "Nishat Mills is in the midst of a Rs 1.5 billion expansion into higher quality yarn, dyeing and fabric finishing facility. Ibrahim Fibres is finalising financing for a Rs 4 billion expansion which would raise its PSF production capacity by 200 percent by 2002; and Dewan Salman Fibres has successfully commissioned an acrylic plant."

Elsewhere, Engro's Engro-Asahi subsidiary has recently started production in its new PVC facility while Dewan Farooq Motors has rolled out the first units of its Hyundai cars. Indus Motors is planning to begin producing Daihatsu cars in second half of 2000, Nadeem said.

Elaborating on specific stock performance, Nadeem said, "PSO, Nishat Mills

and Ibrahim Fibres stocks have risen by over 200 percent in the last 12 months. Hubco has risen by 118 percent, while the two gas company stocks saw an increase of 175 percent. In the financial sector, MCB and Adamjee Insurance are up by over 100 percent. Even the behemoth PTCL has seen 60 percent rise on year basis."

Going forwards the corporate sector, outlook is positive. Consensus forecasts indicate acceleration in KSE-100 companies' earnings growth from 9 to 13 percent range in FY2000 to 20 to 28 percent range in FY2001. Nadeem said that although the first phase of re-rating has raised equity valuations from their historic lows, the Fund feels that there is still further 25 percent upside potential in the Pakistan market during 2000, if the announced reforms and privatisation plans are implemented.

Commenting on potential risks, he said that external sector weakness were continuing to cause concern to investors and the market was waiting for indications about IMF response to the new economic reform package as well government's plans about any possible second restructuring of external debt in 2001.

Regarding tensions with India, that have recently made head lines, as well the Clinton visit to the subcontinent this spring, Nadeem said he felt that while theoretically valid, the fears of an Indo-Pak conflict were over-blown. In practical terms, he said, this was more of a red-herring, and astute investors were likely to take advantage of market weakness due to these fears to build positions in Pakistan equities.