In Pakistan, stage set for accumulation of stocks by value hunters

If Pakistan moves out of FATF grey list, it will boost sentiment of foreign investors

KARACHI: Has the moment arrived in the stock market for which both investors and traders were anxiously waiting?

Legendary investor Warren Buffet once said: “Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard.”

However, all eyes are currently fixed to the benchmark KSE-100 index, rather than individual businesses. The recent breach of the 32,500-point resistance level and close above 33,000 in the last trading session on Friday with healthy volumes, has been welcomed by all the market participants as a first drop of rain after a long and agonising dry spell in the market.

Let’s analyse if there is any fundamental basis for the renewed enthusiasm or just a false breakout or a technical recovery from an oversold zone.

Market analysts concur that the Financial Action Task Force (FATF) decision will be the make-or-break moment in the market as moving out of the grey list or even avoiding blacklist will boost the sentiment of foreign investors.

Considering the friendly tweets and gestures from the Trump administration, it seems we are very likely to sail smoothly in the upcoming FATF review in Paris despite all the negative propaganda by the Indian media.

On the monetary front, the yields of recently auctioned short-term treasury bills in September declined 31 basis points, which clearly indicate that market participants are expecting a dovish stance in the upcoming monetary policy statements.

On the fiscal side, the falling crude oil prices will have dual benefits for the government as the increased cushion has allowed it to raise levies on petrol and diesel to generate excess revenue and has reduced the pressure on foreign exchange reserves with a reduction in the current account deficit.

Another news report that has created a lot of enthusiasm, particularly in the cement and steel sectors, is the government’s focus on reviving the construction industry despite some pressure from the International Monetary Fund (IMF) programme to cut the development budget due to missing of revenue targets, etc.

The cement sector has remained in the limelight in the stock market with positive news coming from all sides including the revival of the cartel and anticipation of improvement in margins due to falling coal prices. All this has sent cement and steel stocks to their upper circuits with weekly gains in Fauji Cement (22%) and Maple Leaf Cement (24%) keeping investors and traders engaged actively in the cement sector.

Prospects of the revival of Afghan peace talks and resumption of Afghan transit trade indicate improving geopolitical situation on Pakistan’s western borders. This could also prove encouraging for the cement units situated in the northern region, which will be able to regain the lost share in the Afghan market.

However, the situation on the eastern border with India will remain a major stumbling block in the coming days and investors are keeping a close watch on future developments after Prime Minister Imran Khan’s fiery speech in the UN General Assembly.

Recent encouraging reports from multilateral institutions such as the IMF, Asian Development Bank (ADB) and World Bank, where they acknowledged the progress made by Pakistan under the ongoing structural reforms programme, and the green signal from the UAE for a $5-billion investment in a refinery in Pakistan gave a boost to the overall sentiment.

The smart money has surely sensed that after a prolonged downturn, the economy has reached the inflection point with limited downside risk and huge upside potential.

It seems that the stage is all set for the slow and gradual accumulation by value investors to reap benefits of the levels rarely seen in the history of Pakistan’s stock market.

The writer is a financial market enthusiast and attached to Pakistan’s stocks, commodities and emerging technology

 

Published in The Express Tribune, October 7^th, 2019.

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