After falling 46 percent (64 percent in $ terms) from its May 2017 peak, Pakistani market now trades close to forward PE of 5x with dividend yield of 9 percent and price to book of less than 1x, analysts said. These valuation numbers are not seen since the infamous market closure in 2008. Resultantly, Pakistan now trades at a 60 percent discount to average Asian Emerging Markets PE of 13x as compared to last 10-year average discount of 33 percent.

"We think market has overreacted to bad headlines on the economic and political fronts," an analyst at Topline Securities in his research report said. He expects any positive news on the political (settlement with India or opposition parties) or economic front (Eurobonds, carry trades) will help in a 5-10 percent market recovery in the short run. In the medium-term, reduction in political and economic uncertainties can take the market close to its historic PE average of 8x, he added.

"We believe that interest rate cycle is now close to its peak and we may see interest rates coming down in next 12 to 18 months," he said. Moreover with falling imports Pakistan currency may not show major fluctuations going forward. "We have filtered out 9 companies with low PE/high dividend yield. These companies, in our view are attractively placed on our valuation matrix," the research report maintained.

Copyright Business Recorder, 2019