WITH rising doubts about how the economy’s performance in the upcoming year, investors have started worrying about the best investment options available in 2019.
In 2018, gold gleamed as an investment option, a safe bet in volatile times. Gold has an inverse correlation with most other asset classes — a group of securities that behave similarly in the marketplace — so that when returns on stocks were negative, and almost all else in single digit, the 21.8 per cent gain in gold eclipsed all save the dollar.
Investors in the greenback sat on the highest gain of 25.8pc due to a massive depreciation in the value of the rupee. This however was a one-off for the dollar as it produced double digit returns for first time in 10 years with the last bounty at 27.6pc during the global depression of 2008.
Dr Khalid Mirza, chairman Securities and Exchange Policy Board opines that in 2019 investor in securities are likely to be winners. But, he cautions, by winners he means those who put their money using stock ‘technicals’ and not ‘fundamentals’.
He believes real estate can provide good returns if investments are made in properties that are on the outskirts of major cities and not in the centre, while for fixed income securities he displays no penchant: “It is akin to fighting against inflation,” he says.
Syed Hussain Haider, head of research at JS Global makes a guess on how returns on investment will play out in 2019: Stock market providing a return of around 20pc; National Saving Schemes (NSS) and government securities a return of 11.3pc. Money in the bank, which in 2018 earned just 3.2pc, is likely to provide 9pc in 2019. The dollar could generate 6pc and gold 12pc.
According to the above, returns on all asset class — save for gold and dollar — will improve, but the equity market will take the cake.
“The problems that the stock market has been going through are not unique. If we look back at all the times the market has faced a rough patch, one thing is immediately evident: Those investors who enter at these ‘inflection points’ of the market cycle are the ones who are a cut above the rest,” says Mr Haider.
He affirms that in 2019, for investors with an appetite for risk, equity market returns are expected to be higher than those of other asset class. For risk-averse investors fixed income instruments, money market and government securities are considered to be avenues of choice.
As an asset manager, Mr Haider would not talk about investment in mutual funds owing to a conflict of interest, but recommended Bonds due to high interest rates for high-net-worth individuals and NSS for risk-averse, small, investors.
Zulqarnain Khan, executive director, Next Capital also puts stocks as the winner of 2019, expected to generate a return of 17.6pc. He believes mutual funds may offer attractive returns: Stock Fund 27.1pc; Income Funds 10.7pc and money market funds 9.7pc.
Mr Khan estimates returns on savings accounts in banks at 8.5pc; Defence Savings Certificates 12.2pc, one-year Treasury Bills to yield 10.9pc and three-year Pakistan Investment Bonds (PIBs) 11.7 pc.
It is a small consolation that the Pakistani investor is not alone in their loss of wealth in 2018. The world’s richest people lost $511 billion in the year, according to Bloomberg, which ascribed the fall to global trade tensions and worries about US recession.
“For 2019, equities look like a suitable investment avenue, considering that they delivered losses in the last two years (negative 20pc in 2017 and negative 24.9pc in 2018),” says the CEO of Insight Securities, Zubair Ghulam Hussain.
The turmoil in the economy that reverberated in the financial markets is likely to calm down as the economic situation improves post the International Monetary Fund (IMF) aid package (if it goes through) and crude prices sinking to recent lows. This may allow equities to bounce back.
Samiullah Tariq, director research and business development at Arif Habib Limited responds: “For small investors with an appetite for risk, the best place to park money is in equities and mutual funds as stocks are currently trading at a mere 7.6 times price-to-earnings (p/e), which is quite below the nine times p/e for the 14-year average.”
For risk-averse investors he recommends PIB yields at 13.08pc, where returns are guaranteed. And in case interest rates decline in a year or two they can pocket capital gains and return to equities.
Owing to improved reserves from aid provided by friendly countries (and perhaps an IMF package), the stumbling oil prices could trim the trade deficit because of which investment in the dollar holds scant appeal. The rupee is expected to depreciate by 4-5pc going forward.
With regard to equities, many analysts have changed perception from investment in defensive plays to high growth value shares.
Most investment strategists will not bet on real estate due to both regulatory and market risks, aside from the terror of the sector being a prime target of investigations into money laundering.
Activity in the housing market slumped in 2018, as investors’ confidence was dented due to the ban on, and subsequent lifting of the curbs on high-rise buildings in Karachi and the Bahria Town fiasco.
“An investor who puts money in real estate runs the risk of being trapped for it will be difficult for them to recover their capital if the land turns out to be an unregulated or encroached property,” says an analyst.
Many knowledgeable investors consider it a blessing that the Pakistani market was not ripe for new and untested assets such as Bitcoins. The digital currency proved to be the worst performing asset class in the developed world as the bubble burst, wiping out investors’ wealth.
Yet asset managers also complain that the Pakistani investor is forced to invest in the same class of assets over the last 50 years with no new investment avenues. “Is it surprising then that the money, both black and white, continues to be siphoned out to countries with better and safer investment options?,” asks a critic.
Published in Dawn, The Business and Finance Weekly, December 31st, 2018