Pakistan Stocks Rise to Record as Sharif Approaches Win

Pakistan’s stocks climbed the most in two months to a record as unofficial election results showed a party led by former Prime Minister Nawaz Sharif winning the most seats in parliament.

The benchmark KSE 100 Index gained 1.8 percent, the most since March 12, to 20,272.28 as of 2:10 p.m. Karachi time, taking its rally this year to 20 percent. Sharif’s Pakistan Muslim League will probably lead a government that will support the nation’s business community, said Farrukh Hussain, who oversees about $110 million as chief investment officer at BMA Asset Management Co.

Sharif, who served two terms as Pakistan’s prime minister in the 1990s, will face the challenge of bolstering an economy hampered by a power crisis and quelling a Taliban-led insurgency that has killed 151 people leading up to the elections. The KSE 100 rallied 8.5 percent in February 1997 when Sharif won his second term. The gauge could rise between 3 percent and 5 percent this week, and 15 percent by the end of the year, BMA Asset’s Hussain said.

“With a Nawaz Sharif-led government, we can see a lot of support for the economy,” Hussain said by phone from Karachi yesterday. “Investors would feel much more comfortable with the incoming government.” BMA Asset’s Pakistan Opportunities Fund has beaten 98 percent of its peers this year, data compiled by Bloomberg show.

Sharif’s party had won 127 seats in the lower house of parliament, according to a tally by state-run Pakistan Television. President Asif Ali Zardari’s Pakistan Peoples Party, which headed the previous administration, took 31 seats, a third of its previous total.

Slowing Growth

The results set the stage for the longer-term stability of the country’s sovereign rating of B minus, Standard & Poor’s Ratings Services said in a statement from Singapore today. That’s six levels below investment grade.

Sharif, whose family owns steel and sugar mills, ended state monopolies in shipping, airlines and telecommunications when in office. Pakistan’s $210 billion economy grew an average 3.8 percent each year during Sharif’s terms as prime minister, according to data on the World Bank’s website. Under Zardari’s five-year administration, growth slowed to an average 3 percent, less than half the annual pace of the previous five years.

The KSE 100 Index surged this year as higher commodity prices and consumer spending boosted earnings of the gauge’s companies by 43 percent in the past 12 months, the most among 17 Asian equity indexes, data compiled by Bloomberg showed as of May 9. That profit growth lured $202 million of stock purchases from overseas investors this year, the most since the same period in 2010, the data show.

Attractive Valuations

The stock rally has driven the gauge to trade at 8 times estimated earnings, the most expensive level in almost two years, according to data compiled by Bloomberg. The last time the gauge traded at this level -- in June 2011 -- the measure slumped more than 10 percent in two months. The current valuation is still 44 percent below the MSCI Asia-Pacific Index’s 14.2 multiple.

“Valuations are still attractive,” Muhammad Imran, who oversees about $203 million as chief investment officer at ABL Asset Management Co. in Karachi. “People will take this election positively. Foreign inflows have been driving the market and this will continue.”

Seven stocks advanced in the KSE 100 today for each one that declines. MCB Bank Ltd., the country’s largest by market value, gained 4.9 percent to 261.60 rupees, poised for the highest close since May 2008. Pakistan State Oil Co. jumped 5 percent to 221.86 rupees.

Management Overhaul

Zardari’s party was the first elected administration in Pakistan’s history to complete a five-year term and transfer power through a vote. Sharif’s party has vowed to seek agreement with rivals and the armed forces over curbing militancy that killed 151 people in election-related violence.

His mandate would enable him to pursue an agenda topped by fixing an energy crisis that sliced 2 percentage points off economic growth in the last financial year and overhauling the management of unprofitable state-owned companies.

Sharif will appoint professionals to run state-owned companies, especially power firms loaded with debt, Chaudhry Nisar Ali Khan, who led the Pakistan Muslim League in opposition in the last parliament, said in an April 26 interview. Unprofitable firms would ultimately be privatized, he said.

The election results will boost the KSE 100 by as much as 3 percent today, according to Mohammed Sohail, chief executive officer at Topline Securities. Topline was the only brokerage named to AllWorld Network’s Pakistan Fast Growth 100 of the nation’s fastest-expanding private companies.

Sharif “is considered not only business friendly but considered as being able to resolve economic issues in a better way than the previous government,” Sohail said by phone yesterday from Karachi. “This is the perception investors have and this is why a positive welcome is expected in the stock market.”

Before it's here, it's on the Bloomberg Terminal.