LAHORE - Bearish sentiments prevailed for better part of the week, but the market witnessed some recovery towards the end, helping index close in the green zone after five weeks of consecutive red closings.

Bottom fishing in heavyweight stocks helped KSE-100 index record increase of 825pts (+2.1 percent WoW) to close at 39,471. This also coincided with news of PSX looking to introduce Category B that will include companies eligible for margin trading system and deliverable futures. Foreign institutional investors (net selling of $5m during the week) and banks (net selling of $4m) continued to offload positions amidst ambiguous political and economic climate. Overall activity remained weak with average traded value of $52m/day (down 14 percent WoW), however average traded volume inched up to 138m shares/day (+2 percent WoW). Most of value buying activity remained concentrated into heavyweight sectors such as (1) banks (+5 percent WoW), (2) fertilizers (+3 percent WoW), (3) cements (+3 percent WoW) and (4) oil and gas marketing (+2 percent WoW). On the other hand, sectors such as (1) food and personal care (down 3 percent WoW) and (2) refinery (down 1 percent WoW) etc. witnessed declines. On the macroeconomic front, news flow remained unsettling as SBP data for external account showed Jul-Nov 2017 C/A deficit data at $6.43b, up by a massive 91 percent YoY on account of deteriorating trade balance. As C/A deficit continued to swell, the country continued to bleed FX reserves with last week numbers showing net balance of $20.38b, a decline of $303m vis-a-vis the week before. Apart from this, key news influencing trading activity during the week were (1) PM Khaqan's reaffirmation to hold elections in Jul-2018, (2) Senate passing delimitation bill, (3) talks of Pakistan and Russia signing gas pipeline deal worth $10b, (4) approval of $825m loan by World Bank for Pakistan and (5) commissioning of Lucky Cement's (LUCK) 1.30m tons brownfield expansion.

Experts said that the week witnessed a volatile session at the bourse where bears remained dominant in the first two trading sessions only to be brushed aside by bulls in the remainder of the week, pushing the index to 39,471 level (+825 points) on Friday, resulting in a positive closing for the week (+2 percent WoW). Experts attribute this to growing clarity on the future frontrunner for the top slot in the next election. In an important development, Nawaz Sharif, Chief of the ruling party, Pakistan Muslim League (N), nominated his younger brother, Shahbaz Sharif, for the post of Prime Minister in the upcoming general election. Market activity also witnessed a decent rebound towards the end of the week, as a result of which ADT rose to 138m shares (+2 percent WoW), while the ADTV reduced to $52m (-15 percent WoW) which reflects market participant’s rising interest in 2nd and 3rd tier scrips.

Foreign investors remained net sellers during the week with $5.4m selling, however, this was easily absorbed by local investors where individuals ($2m) and insurance companies ($1.6m) emerged as the largest buyers on the local front. Most of the foreign selling was witnessed in cement ($6.5m) and textile ($1.1m) sectors whereas fertilizer ($3.8m) and oil & gas ($1.3m) sectors attracted inflows. On sectoral front, banks (+5 percent WoW), industrial metals (+5 percent WoW) and engineering (+3 percent WoW) closed on a positive note whereas food producers (-3 percent WoW) ended the week on a negative note.

Amongst key data points during the week, the State Bank of Pakistan (SBP) reported current account deficit (CAD) for Nov’17 at $1.4b (+11 percent MoM), whereas on a cumulative basis, CAD was recorded at $6.4b, up 91 percent YoY. Some respite to the rising CAD came from the FDI numbers which were reported at $1.1b (+57 percent YoY) during 5MFY18. China continued to remain Pakistan’s largest source of FDI. Furthermore, SBP also reported private sector credit off-take statistics which revealed that borrowing by the private sector doubled to Rs112b during the five month period of Jul-Nov’17.

Moving ahead into the last week of the year, some correction at the local bourse cannot be ruled out as rollover week is set to begin from Tuesday. Having said that, experts highlight that 17 percent correction in market (CYTD) has made valuations attractive where locals have ample liquidity to resume a pullback in the market as political concerns subside. Top ten picks are PPL, MARI, EFERT, FFC, NCL, NML, UBL, MCB, HUBC and NCPL.