LAHORE - The outgoing week proved momentous for the market participants as volumes touched levels that were not seen for over a year (13-month high) and the index continued past the psychological 40,000 barrier. Activity was seen across the board, especially in index heavyweight sectors like cement and banks.

Benchmark KSE-100 index gained 2.2 percent over the week to close at 40,340 index level.

Average daily volumes for the outgoing week increased 23 percent WoW to 457 million shares while average daily value rose 17 percent WoW to Rs14.8 billion/ $142 million during the week.

Commercial banks were among the top gainers over the week, up 4 percent, followed by oil & gas exploration companies and automobile assembler, which increased 2 percent and 6 percent, respectively. Tobacco, power generation & distribution sectors were among the losers as they fell 4.1 percent and 0.6 percent, respectively.

Foreigners were net sellers of $7.1 million worth of shares during the week. Stocks in the cement sector witnessed net selling of $25.8 million during the week; net buying of $10. 5 million was seen in banking stocks. FXTM Research Analyst Lukman Otunuga commented that global stocks remained mixed with most major markets on a standby as anxious investors observed from a distance ahead of the market shaking employment report.

Asian equities have already drifted lower on Friday and this caution could trickle into Europe, consequently leaving European stocks vulnerable to losses. Wall Street was punished on Thursday by the downbeat US manufacturing data that rekindled concerns over the US economy with further losses expected as investor jitters intensified ahead of the NFP.

He said that a sense of anticipation had firmly gripped the financial markets on Friday as investors awaited the Non-Farm payrolls report for August which could provide clarity on when the Federal Reserve planned to raise US rates in 2016.

According to Lukman Otunuga, the over-extended stock market rally may be displaying signs of exhaustion with September being a potential month where bears emerge from hibernation.

Although the heightened expectations of the Fed raising US interest rates has somewhat elevated global sentiment, the persistent concerns over the health of the global economy are still lingering in the background. Prolonged periods of depressed oil prices have eroded investor risk appetite while uncertainty is still a recurrent theme which has left market participants on edge.

With volatility making a comeback it could take an unexpected catalyst to trigger a steep stock market selloff. Conventional wisdom holds that a strong dollar is problematic for stocks which should keep investors alert as hopes heighten over the Fed taking action this year.

According to experts, there is confusion among investors at Pakistan Stock Exchange.

The accountability movement of Imran Khan, Qisas movement of Tahirul Qadri and other political party’s preparation to re-ignite street politics has blurred the political canvas for the PML-N government to some extent.

Furthermore, the role of military/government post MQM chief anti-state slogans has fueled many conspiracy theories.

Though, the initiation of investigation into the Panama Leaks is a direct threat to the Prime Minister, the recent opposition plans to enforce the Terms of References may not be fruitful as the opposition parties are pursuing their agendas separately.

But sustained street protest for some few weeks, any law and order situation or hiccup over army chief appointment/extension could affect investor’s confidence where we cannot rule out volatile trading sessions (which is already hovering around record high levels) and low volumes.

However, experts do not see major risks to the political system as Army would like to keep controlling matters outside the government corridors since it is busy at borders and troubled areas.

If opposition remains successful in implementing its ToRs, the legal process till the pronouncement of judgment would be very slow and lengthy.

“Even if, the judgment comes against the PM and early elections are called, there is a higher probability of PML-N winning again, considering service delivery, growth projects and improved law and order situation,” the experts anticipated.

KSE100 index Bull Run of 22 percent in 2016 and 31 percent since the low of 30,565 in Feb 23, 2016 has limited further price upside for most of the major sectors. However, we maintain our 45k June 2017 target (41,500 by Dec 2016) where most of the upside would come from valuation rerating in the index heavy weights backed by reclassification to Emerging Markets. Apart from this, we recommend cherry picking in Banks (BAHL, MCB, HBL and ABL) and Fertilizers (EFERT and FATIMA) while cement stocks should be trimmed in favor of textiles.