In the last 10 years, the average returns of equities, savings certificates, dollar and commodities have been 17%, 10.8%, 5.5% and 15%.
KARACHI:
The question that most potential investors gathered at the head office of Elixir Securities to attend an equity trading training session seemed to have was a simple one: how in God’s sweet name do the companies listed on the Karachi Stock Exchange (KSE) post such magnificent returns every year despite a crippling energy crisis, poor governance and a break-down in law and order in more than one part of the country?
“Hue and cry aside, businesses thrive in Pakistan. Even the grocer and rickshaw wallas make more money than a fresh ACCA entering the job market,” Muhammad Ali Taufiq, head of equity strategy (retail) at Elixir Securities, a brokerage house associated with the Dawood Group of Companies, told the audience. He could have been right, but it was a sweeping generalisation nevertheless.
Sector-by-sector, Taufiq explained to about two dozen potential investors why KSE-listed companies actually benefit from such recurring crises. For example, energy companies receive their payments in dollars as per their contract with the government, which effectively insulates them from rupee devaluation, he said.
Similarly, cement companies have benefitted from declining coal prices internationally. On the contrary, Taufiq said people should be cautious while investing in a financial services firm, particularly banks, keeping in view the shrinking spreads of the banking sector.
Using statistics to show that stock investments hedge one’s savings against inflation and produce real returns that are better than those offered by other investment options, Taufiq said equities posted negative returns in only nine out of the last 36 years.
In the last 10 years, the average returns of equities, savings certificates, dollar and commodities have been 17%, 10.8%, 5.5% and 15%, he said, adding that commodities are the riskiest of all investment options. “Gold has little industrial use. The fluctuation in its rate is primarily linked to the stability of the dollar,” he said, reminding the audience that neither gold nor dollar can post returns as high as equities can.
Published in The Express Tribune, June 30th, 2013.
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