LAHORE - The KSE-100 index continued its recent range-bound activity during the week; however, closing amid positive sentiments as the last trading session of the week lent 232 points to the overall 272 point increase.
The benchmark index closed at 41,661 level, up 0.7 percent WoW. Along with updates on the ongoing meetings between IMF and various government officials, developments on the front of the Prime Minister's visit to Malaysia and UAE also surfaced, (expected around the third week of this month). Nonetheless, further delays in expected inflows from Saudi Arabia and lack of clarity on potential package from China kept investors lukewarm with participation remaining stagnant as compared to the previous week.
Pressure on international oil prices (-5 percent WoW) dragged the Oil & Gas Exploration sector that declined by 1.2 percent WoW. On the other hand, a declining trend in global coal prices (-2.1 percent WoW) coupled with the Economic Coordination Committee (ECC) allowing the cement industry to raise prices supported the Cement sector to gain 2.7 percent on a WoW basis. Additionally, MSCI Index Semi Annual review for November-2018 was released during the week where (1) Lucky Cement (LUCK, +3.8 percent WoW) and United Bank (UBL, +1.8 percent WoW) were relegated to MSCI Small Cap Index and (2) Honda Atlas (HCAR, -7.4 percent WoW) and Maple Leaf Cement (MLCF, +2.3 percent WoW) were deleted from MSCI Small Cap Index.
Net foreign selling accumulated to US$23.4mn in this week, higher than last week's net selling of US$9.2mn. Other key news during the week were (1) Amreli Steels (ASTL, -4.4 percent WoW) to set up plant at Dhabeji, raising its capacity from 0.6mn tons to 1.1mn tons, (2) Engro Corporation's (ENGRO, -1.3 percent WoW) 660MW coal power plant to become operational in Jan-2019, (3) Ghandhara Nissan (GHNL, +2.3 percent WoW) to assemble Renault trucks from 2019 end, (4) Pakistan Bureau of Statistics (PBS) revises Oct-2018 CPI to 6.78 percent from 7.0 percent reported previously, (5) power generation for Oct-2018 declines by 6 percent YoY to 9,574 GWh, (6) projects worth Rs659bn approved by Ecnec, and (7) ECC decides to raise Rs300bn through Islamic financing to clear some portion of circular debt.
Experts said that Pakistan equities experienced a volatile week as initially investors remained on the back foot, wary of Morgan Stanley Capital International’s (MSCI) Semi?Annual Index Review, published on Nov 13 2018. LUCK and UBL were removed from MSCI Global Standard Index Pakistan, lowering Pakistan’s expected weight in MSCI EM to ~0.04 percent vs. 0.06 percent earlier, in line with our expectations. Later during the week, after confirmation by a Saudi envoy that KSA would release US$3bn (part of US$6bn package) to Pakistan in next few days, Investors’ confidence was rejuvenated. Further, modalities of Chinese assistance to Pakistan are being worked out as experts from both sides are in contact to formalize the details of the package, which also elevated investors’ confidence. Resultantly, the Index gained 272pts (or +0.66 percent) WoW.
A decline in coal prices during the week kept the Cement Sector at the forefront as the sector added 94 points to the index, second only to Commercial Banks which added 193 points. E&P’s performed poorly this week, as International Oil prices declined, chipping away 78 points.
During the week foreigners were net sellers amounting to US$24.1mn vs. US$9.4mn in the previous week, this is their 28th consecutive-week of selling. While on local front, Mutual Funds and individuals were net buyers of US$9.2mn cumulatively.
The current account deficit shrank by 4.5 percent during the first four months of this fiscal year, however it is still much higher than desired level as the government struggles to reduce deficits and avoid large foreign borrowings. The latest report by the State Bank of Pakistan shows the country has a current account deficit of US$4.8bn during July-October period of 2018-19, albeit declining by US$232mn, from US$5.072bn in the same period last year.
Foreign exchange reserves held by the State Bank of Pakistan dropped US$196mn to four-and-half years low at US$7.5bn during the week ended on Nov 9, showed data released by central bank.
Pakistan’s reserves adequacy is among the lowest of rated sovereigns covering less than two months of imports as of September warns Moody’s in its ‘Global Emerging Markets: Outlook’ report. The agency, which rates Pakistan at B3 Negative, expects the country’s external vulnerability indicator (EVI) ratio to rise to 153 percent in 2019.