GURUFOCUS.COM » Global Market Valuations » Pakistan Tutorial

Country: Pakistan (updated daily) check out Global Overview for detailed methodology.

According to the original Buffet Indicator, the Stock Market is Modestly Undervalued.
Ratio of total market cap over GDP: Recent 10 Year Maximum - 31.11%; Recent 10 Year Minimum - 12.08%; current - 16.98%
Expected future annual return: 19.2%

Based on the newly introduced total market cap over GDP plus Total Assets of Central Bank ratio, the Stock Market is Modestly Undervalued.

Ratio of total market cap over GDP plus Total Assets of Central Bank: Recent 10 Year Maximum - 25.28%; Recent 10 Year Minimum - 9.33%; current - 13.37%
Modified expected future annual return: 19.4%

ETF Used for dividend yield: PAK (Yield=6.84%)
Market Index used: KSE 100 Index
Current Annual GDP: $304 billion US dollars or 84,665 in billions of national currency (GDP in Local Current Prices Annual Growth=9.55%)
Current Total Asset of Central Bank: $82 billion US dollars or 22,845 in billions of national currency
Data since year 1997

Pakistan Historical GDP Growth

Historical GDP of Pakistan in billions of national currency. The GDP in local current prices has grown at the annual rate of 9.55% over the past 8 years. Please note this growth rate includes the effect of price inflation and it is NOT the real GDP growth rate. Current Annual GDP: $304 billion US dollars or 84,665 in billions of national currency.

Historical Stock Market Cap

Historical total market of Pakistan in billions of national currency. This value is normalized using the data published by WorldBank. KSE 100 Index is used for the normalization. The KSE-100 Index is a stock index acting as a benchmark to compare prices on the Pakistan Stock Exchange (PSX) over a period.

Historical Total Assets of Central Bank

Historical Total Assets of Central Bank of Pakistan in billions of national currency, which is obtained from each country’s central bank balance sheet. Please be aware that if the total assets is displayed as zero or - , it suggests that there's no data available rather than the original data being zero. In this case, the modified version of both the ratio and projected annualized market return will be treated the same as the original version.

Original and Modified Historical Ratio of Total Market Cap over GDP (%)

The current ratio of total market cap over GDP for Pakistan is 16.98%. The recent 10 year high was 31.11%; the recent 10 low was 12.08%. If we assume that the ratio will reverse to the recent 10 years mean of 21.18% over the next 8 years, the contribution to expected annual return is 2.8%.

Based on the modified version, the current TMC / (GDP + Total Assets of Central Bank) Ratio for Pakistan is 13.37%. The recent 10 year high was 25.28%; the recent 10 low was 9.33%. If we assume that the ratio will reverse to the recent 10 years mean of 16.95% over the next 8 years, the contribution to expected annual return is 3.01%.

This is the detailed historical chart of the original TMC / GDP ratio and modified TMC / (GDP + Total Assets of Central Bank) ratio.

Based on these historical valuations, we have divided market valuation into five zones:

Ratio = Total Market Cap / GDP	Valuation
Ratio ≤ 15%	Significantly Undervalued
15% < Ratio ≤ 19%	Modestly Undervalued
19% < Ratio ≤ 23%	Fair Valued
23% < Ratio ≤ 28%	Modestly Overvalued
Ratio > 28%	Significantly Overvalued
Where are we today (2024-04-23)?	Ratio = 16.98%, Modestly Undervalued

Based on these modified historical valuations, we have divided market valuation into five zones:

Ratio = Total Market Cap / (GDP + Total Assets of Central Bank)	Valuation
Ratio ≤ 12%	Significantly Undervalued
12% < Ratio ≤ 15%	Modestly Undervalued
15% < Ratio ≤ 19%	Fair Valued
19% < Ratio ≤ 22%	Modestly Overvalued
Ratio > 22%	Significantly Overvalued
Where are we today (2024-04-23)?	Ratio = 13.37%, Modestly Undervalued

Predicted and Actual Returns

From the equation presented on the U.S. market valuation page,

Investment Return (%) = Dividend Yield (%) + Business Growth (%) + (Re/Rb)(1/T)-1

We can compute the predicted and actual returns of the Pakistan stock market over a given time period, T. In the calculation, we set T to equal eight years, the approximate length of a full economic cycle. The calculated results are presented in the chart below.

The Predicted Return line indicates the expected, or predicted annualized return for the next eight years if the current TMC / GDP ratio reverts to its recent 10 years mean of 21.18%.

The Modified Predicted Return line indicates the expected, or predicted annualized return for the next eight years if the current TMC / (GDP + Total Assets of Central Bank) ratio reverts to its recent 10 years mean of 16.95%.

The Actual Return line indicates the actual, annualized return of the Pakistan stock market over eight years. We use “KSE 100 Index” to do the actual return calculation. We can see the calculations largely predicted the trend in the stock market as the actual return line is closely parallel to the two predicted return lines.

Conclusion

Under the original buffett indicator, the stock market of Pakistan is expected to return 19.2% a year for the coming years. This is from the contribution of economic growth in local current prices: 9.55%, Dividend Yield: 6.84% and valuation reverse to the mean 2.8%.

Under the modified model, the contribution of economic growth and dividend yield stays the same while the valuation reverse to mean changes to 3.01%. Consequently, the stock market of Pakistan is expected to return 19.4% a year.

This is the projected return and the modified projected return of the stock market in Pakistan relative to other countries. Click on the country on the right sidebar to check out the details for each country.





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