Karachi: Pakistani tycoon Arif Habib said Asia’s best stock market rally in the past year may extend a further 20 per cent led by banks, fertiliser and energy companies, rejecting concerns that the market has been supported by speculators.

As industries and the economy grow, Habib, the Karachi-born financier who has seen his fortune swell after his start as a stockbroker more than four decades ago to the head of a 14-company conglomerate, is putting his money where his mouth is by raising the group’s cement and steel output.

“The returns have been huge,” Habib, 64, said in an interview in his office in Pakistan’s coastal business hub. “Investors who know the difference between the perception and reality of investing in Pakistan make a killing.”

Pakistan stocks have stagnated after soaring 46 per cent in 2016. The market may get a fillip after its added to MSCI Inc.’s emerging-market gauges in May, Habib said. The KSE100 Index may advance 18 per cent by the year-end, according to the average estimate in a Bloomberg survey of 15 analysts in January.

Any gain would see the measure stretch its run into a sixth straight year, making it the longest run since 2002 to 2007. The index gained 0.5 per cent at 11.52am in Karachi.

Prime Minister Nawaz Sharif is aiming to boost economic growth to the highest in a decade with the help of $55 billion (Dh202 billion) in planned Chinese infrastructure loans. A group of three Chinese bourses and two local lenders bought a 40 per cent stake in the Pakistan Stock Exchange in December, highlighting the growing ties between the two countries.

While its ascension to emerging-market status has generated a lot of optimism, investing in Pakistan is not without risks. Foreigners have pulled $146 million from stocks this quarter, adding to withdrawals of $248 million in the last three months of 2016. The KSE100 trades at 10 times 12-month estimated earnings, near the most expensive level since 2008.

“Everybody asks why the price-earning multiples are going up? I say now in Pakistan investors have hope about the future and they’re giving value to the companies,” said Habib. “No doubt the market rose sharply and is now in a consolidation phase.”

Some analysts say stocks have run ahead of fundamentals. Pakistan may face problems in repaying loans to China and a stalled privatisation drive, persistent security concerns and a potential slowdown in economic reforms before the 2018 general elections are headwinds.

Quick returns

Pakistan’s investor base of about 200,000 people aren’t sophisticated players, and are often looking to make a quick 20 per cent return in about two to three months, according to Imtiaz ul Haq, an assistant professor of economics at the Lahore University of Management Studies.

A buoyant stock market is “sort of a mirage”, Haq said. “A lot of these investors have very little idea about finance. They have absolutely no idea what the fundamentals are or what a price-earnings ratio stands for.”

Habib’s businesses are currently expanding as demand grows, with units of Arif Habib Corp. doubling cement and tripling steel production in two years. Habib said the group plans to set up a $500 million (Dh1.8 billion), 330-megawatt plant in the southern Thar desert by 2022, using coal from a mine owned by another Pakistani conglomerate Engro Corp.

Habib’s Fatima Fertilizer Co. revenues are also expected to climb to $370 million in 2017 from $340 million year earlier as 60,000 tonnes of urea will be exported, he said. The group is looking for a partner to start work on its planned overseas plant in Indiana.