LAHORE - Political crisis in the country continued to unfold during the week as Joint Investigation Team (JIT) formed by the Supreme Court made its findings public. Amidst calls for resignation by the opposition parties, PM Nawaz and federal cabinet took a hard stance and snubbed speculations of resignation with firm reaffirmations to challenge all aspects of the report in the Supreme Court. Investors are now eagerly looking towards the Supreme Court with hearings on JIT report findings set to start from Monday. The uncertainty instilled fears, which continued to shake the bourse during the week with benchmark KSE-100 index closing at 44,337 pts (down 2 percent WoW), levels seen in Dec-2016. Overall activity witnessed improvement during the week with average traded volumes and value clocking-in at 175m shares/day (up 5 percent WoW) and $92m/day (up 5 percent WoW). Almost all major sectors such as (1) oil & gas exploration (-0.1 percent WoW), (2) banks (-0.6 percent WoW), (3) OMCs (-2.7 percent WoW), (4) fertilizers (-2.0 percent WoW), (5) cements (-2.3 percent WoW) and (6) automobiles (-7.4 percent WoW) witnessed bloodbath during the week.

Experts said that the index shed 2.0 percent or 885 points in the outgoing week to close at 44,337 points amid uncertainty stemming from political noise.

Market participation improved as average volume & value rose 5 percent WoW, to 175mn.sh & Rs9.7b/$92.2m, respectively.

On the sector front; auto parts (-7.7 percent WoW), transport (-6.3 percent), auto assemblers (-5.8 percent) & food (-3.6 percent) underperformed the broader market, while OMC (-2.3 percent), engineering (-2 percent), cement (-1.8 percent) & fertilizer (-1.6 percent) were in line; while E&P’s and banks fared slightly better shedding between 0-1 percent.

Insurance Co’s (+$15.7mn) were the largest domestic buyers, while foreigners bought $1.0m during the week as against selling of $5.8m last week; buying was concentrated in banks ($4.0m) & E&P’s ($1.4m); while foreigners sold $3.4m of cement, $1.9m worth of oil marketing companies & $1.3m of power generation.

According to IMF, macroeconomic resilience was strengthened during the three-year Extended Fund Facility (EFF)-supported program completed in September 2016: growth increased, the fiscal deficit was reduced, and foreign currency reserves recovered. Structural reforms were also set in motion: long-standing fiscal and energy sector constraints started to be tackled, and social safety nets were strengthened. Following completion of the program, there has been progress in implementing staff’s policy recommendations, although policy implementation has weakened and macroeconomic vulnerabilities have begun to re-emerge: fiscal consolidation slowed, the current account deficit widened, and foreign exchange reserves declined. On the structural front, the accumulation of arrears in the power sector has resumed, financial losses of ailing public sector enterprises continue to weigh on scarce fiscal resources, and exports remain low. Despite progress, poverty and inequality are still significant, and growth needs to become more inclusive.

According to SBP; Pakistan’s total liquid foreign exchange reserves amounted to $21.44b on July 7, up $80m or 0.37 percent from a week ago.

During the weak, Securities and Exchange Commission of Pakistan (SCEP) Chairman Zafar Hijazi asked stock market stakeholders to reassure investors that political events are passing matters and that they should concentrate on market fundamentals. Hijazi recounted measures that the apex regulator has taken for stock market growth. Hijazi pointed out that the apex regulator, in liaison with market players, had in the recent past attained several objectives, including the integration of three stock exchanges, divestment of the PSX to the Chinese investors, inclusion in the MSCI Emerging Market Index, higher compliance level with the International Organisation of Securities Commissions’ benchmarks and the self-listing of the PSX. “All these reforms have helped in the image-building of our market and the country,” said the SECP chairman.

In the coming weeks, the market is likely to remain range bound amid thin trading volumes as market participants would likely seek clarity on the fate of the PM before building fresh positions. However, sustained buying by foreign investors or any positive surprises in earnings announcements of June quarter could provide much needed impetus to the market.