Stellar returns an enigma? – By Mir Mohammad Alikhan
By: Mir Mohammad Alikhan,
Investment Banker, Entrepreneur & Capital Markets Advisor
www.mirmohammadalikhan.com
Five days left for the New Year and I am sure that investors around the world are ready to look at what 2014 holds for them when it comes to equity markets around the world. The old saying “History repeats Itself” in my view does not hold true every time for the Capital Markets. Just because the markets have performed well in a previous year has no bearing on its future performance. The only country to top twice in a row is Venezuela. In 2012 it gave 300% return and in 2013 it has outperformed any other market by leaps and bounds. A hefty 452% return so far this year. It returned 8 times more than its runner up, JASDAQ, Japan. The reasons for, Bolsa De Valores De Caracas, BVC, more commonly known as the Venezuelan stock market, rise were not based on stellar corporate earnings or heavy institutional buying coming from around the world. Rather, it was the negative news that made the market go through the roof. It was the death of Hugo Chavez, the most anti-capitalist South American leader in recent history and the government’s devaluation, of its currency, the Bolivar by 32%.
Debt ridden nations such as Greece and Ireland gave performances that landed them in the top 10 Equity Markets of the world. People bought for the long term in these equity markets hoping that growing sales will translate into growing profits in the coming years. Second reason in my view was that these markets were quite beaten up, more than they deserved.
When it came to repeat performances of the equity markets, 7 out of the top 10 markets of 2012 were nowhere to be seen. Stock Markets that were in the top 10 performing markets of 2012,such as Turkey with a whopping 53%, Egypt 49%,Kenya 39%, Estonia 38%, Thailand 35%, Laos 35%, and Philippines with 33%, were nowhere to be seen in 2013. The only 3 countries that returned to make the list were, Pakistan, Nigeria and Venezuela. Argentina also made its debut into the list of 2013 by returning 33.9% and Zambia, another African nation came in at no. 4 with 37.2% so far this year.
Just a quick comparison of 2012 with 2013 results shows me that bargain hunting is still on in some of the countries out there. Value picking for long term will be the chorus again in the stock markets around the world. Gone are the days, I think, where just following the index will land you in the green zone.
You will have to go cherry picking instead of buying a fruit basket, so to speak. Is there value left in the Pakistani Markets? In my view, absolutely YES. Will the entire sectors move in Pakistani Markets? I don’t think so, but I do think that there are many a companies which are SLEEPER STOCKS in our Markets. Sleeper Stocks are those stocks in my experience, where not everybody has noticed the intrinsic value of the company. That’s where you make a lot of money anyway. The tech heavy NASDAQ for example has thousands of companies listed on it, analyst still have to pick the best few out of them, buy it for the long term and believe in its growth.
Asian markets have already built in, in my view, the US tapering of stimulus to the tune of $10 Billion a month. That still leaves the markets with a $75 Billion a month of liquidity being injected. European markets in my view will not see a stellar year except the battered exchanges. On the other hand in Africa I am very positive on Nigeria with a growing population and a great amount of technology companies penetrating into the African Markets. In the Pacific, I have always, liked the Malaysian and The Thai Markets. Though, they don’t return greatly on the index basis, I have found great values in individual companies in these two countries. And don’t rule out Hong Kong, with $12billion dollars’ worth of new listings put into registration in the past few months, I believe that this island will outperform the mainland market.
All in all, always buy value. Buy for the long term and monitor your stocks. Put trailing Stop Losses if investing overseas and since Pakistan does not provide any option of putting trailing Stop Losses, tell your broker to get you out or you sell yourself if you monitor your own portfolio. I am still bullish on Pakistan equity markets but let caution prevail that I am talking about picking and choosing in Pakistani Markets.
Below is the comparison of the top 10 world equity markets in 2012 and 2013
Country and Stock Market
Rise in share prices in 2013
Venezuela – Caracas Stock Exchange
452%
Japan – Jasdaq Index
51.1%
Iceland – OMXI All Share
38.5%
Zambia – Lusaka Stock Exchange
37.2%
Ireland – Irish Stock Exchange
35.2%
Nigeria – Nigerian Stock Exchange
34.9%
Greece – Athens Exchange
34.5%
Argentina – Mercado de Valores
33.9%
US – NASDAQ Index
33.7%
Pakistan – Karachi Stock Exchange
31.8%
Source: Morningstar
Country and Stock Market
Rise in share prices in 2012
Venezuela – IBC
302.8%
Turkey – XU100
53.3%
Egypt – EGX 30
49.6%
Pakistan – KSE
49.3%
Kenya – NSE
39.3%
Estonia – Tallinn OMX
38.2%
Thailand – SET
35.8%
Laos Composite
35.1%
Nigerian Stock Exchange
34.4%
Philippines – PSE
33.0%
Source: Businessinsider
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