As the stock market opens for trading today, it would mark the first day of the New Year, 2017. For investors in Pakistan equities, the year that we bade goodbye to brought many bounties.

Relative to a flat performance in 2015, investors received a return of 44pc in 2016—a feat that put the Pakistan Stock Exchange (PSX) in the spotlight as the best performing market in Asia.

By comparison, last year the common benchmark for global stocks funds--the MSCI’s Frontier Market (FM) was down 2pc while the MSCI Emerging Market (EM) returns of around 12pc, faded in the face of the 44pc return provided by the Pakistan market.

With slight variations, most brokers and investors also visualise the index to scale new peaks. But the gains in stock prices are directly linked to the growth in profitability of the underlying companies

The significant feature of the Pakistani market’s exceptional performance was that in contrast to the past— when a slight sell-off by foreign investors would send shudders up investor’s spine — the market remained resilient regardless of the heavy foreign selling of $267m worth of stocks during 2016, as the foreign sell-off was absorbed by local participants.

The best part of the 2016 market performance came in the last two months (Nov-Dec) which contributed around 18pc to KSE-100 index gains. Most market participants are therefore looking forward to 2017 with optimism. They expect the rally to continue into the New Year.

The benchmark KSE-100 currently stands at around 47,000 points. “We expect the Index to rise to 56,000 points by Dec 2017, generating 21pc returns (inclusive of dividend)”, predict analysts at brokerage Topline Securities.

With slight variations, most brokers and investors also visualise the index to scale new peaks. “I believe that with other things remaining the same, the index could hit 60,000 by end of 2017”, said a fund manager who has Rs23bn under his management. It may be recalled that during the outgoing year, KSE-100 index rose by 14,184 points to the current 47,000 from 32,816 points in Jan 2016.

But the gains in stock prices are directly linked to the growth of profitability of the underlying companies.

Analysts figure that corporate profitability would grow by 23pc in 2017, compared to an increase of 1pc in 2016, due to several factors including re-bound in oil prices; bottoming out of interest rates; higher sales of oil, fertiliser and autos and finally, increased investment in the energy sector.

According to Topline, the best performers during the New Year could be cements, consumer goods, oil and gas marketing and steel sectors as those were looked upon as prime beneficiaries of rising domestic demand and expansion activities led by the China-Pakistan Economic Corridor (CPEC).

Expected key triggers for corporate growth and the subsequent jump in stock prices in 2017 are: the CPEC, rising consumer demand and the transition to MSCI EM in May 2017.

On the flip side, events that could jeopardise analysts’ calculations include local political climate, delays in implementation of the CPEC projects; weakening of the external account and the unexpected huge outflow from local to developed markets, particularly the US.

According to Al-Falah Securities, liquidity would be the main driving force in 2017. The brokerage says in its Pakistan Equities Strategy 2017: “While estimates vary from $300m to $500m as the net inflow can look like with entry in EM index, but one thing is sure that the hefty outflow witnessed during CY15 and CY16 will reverse”.

Brokerage Insight Securities expects a massive flow of liquidity in 2017: “We estimate a total of $1.0 to 1.5bn fresh liquidity approaching the stock market in 2017.

“Our thesis is based upon the estimated $300-$500m flow linked to MSCI Funds; $140m liquidity inflow to brokers after PSX divestment; net inflow to banks after PIB’s maturity being invested in T-bills or stocks and new fund flows to mutual funds which have received $380m in the last six months (among other sources)”.

Despite the last six-year bull-run which has tossed the KSE-100 index up by a hefty 272pc — including return of 43pc in CY16 — Pakistan still trades at a 23pc discount to the Morgan Stanley Composite Index (MSCI) FM and a 29pc discount to MSCI EM, which means there is a sizeable room for market growth.

Yet, for retail and small investors things appear a little less cheerful.

Private companies, which usually offer shares at low prices still prefer to stay out of equities as only three companies sought listings at the PSX in 2016 against six Initial Public Offerings (IPOs) a year before.

The government offerings of shares at the stock market, in public sector entities have all but dried up. Small investors, therefore dabble in low-priced stocks, many of which may not be fundamentally sound and could eventually lead such small investors to huge losses.

The number of investors in stocks is not known to have taken a phenomenal jump from an abysmal under 5m registered account holders.

The onus is on the government and market regulators to devise measures so that the fruits of the stock market boom are more widely shared.

Published in Dawn, Business & Finance weekly, January 2nd, 2017