Surging Covid cases temper gains

Investors remain on sidelines ahead of monetary policy announcement

In line with the trend seen in the preceding week, tumultuous trading remained the norm at the Pakistan Stock Exchange (PSX) as the index slid back into the red amid weak investor interest for the second successive week. The benchmark KSE-100 index dropped 382.17 points or 0.9% week-on-week to settle at 40,187.18 points.

The downward trajectory was seen on back of various developments that unfolded during the week. Participants reacted negatively to the rising coronavirus cases, which raised concerns of another lockdown.

Despite a few positive developments on the horizon, the stock market failed to rally back to the green. Encouraging foreign direct investment (FDI) and current account surplus for the fourth successive month failed to boost investors’ confidence.

According to data released by the State Bank of Pakistan (SBP), Pakistan received 10-month high foreign investment of $317.4 million in October, meanwhile, the current account surplus soared over five-fold to $382 million in October compared to $73 million in 2019.

However, the developments failed to entice market participants.

The week commenced with bears maintaining a grip on the local bourse as investors reacted with panic to the mounting coronavirus cases - locally and globally.

The market got some reprieve from the selling pressure on Tuesday as the benchmark index finished on a marginally positive note following a rally in the global markets on news of another Covid-19 vaccine. American firm Moderna claimed that its Covid-19 vaccine was 94.5% effective in clinical trials, which drove bullish sentiment in the international equity markets.

However, the mood was tempered on Wednesday by concerns over the arrival of the International Monetary Fund (IMF) mission to Pakistan. Adviser to Prime Minister on Finance and Revenue Dr Abdul Hafeez Shaikh during the week revealed that an IMF mission would visit Pakistan in a few weeks to finalise a deal. The news was met with a rather tepid response as resumption of IMF loan programme would require an upward adjustment in electricity tariff as well as curtailment of subsidies.

The local stock market continued to witness choppy trading on Thursday but the upbeat balance of payments’ data and improvement in foreign exchange reserves cushioned the dip and helped the index finish marginally up. Unfortunately, the trend once again reverted on Friday as the index dropped into the negative territory in anticipation over the upcoming monetary policy announcement, scheduled tomorrow (November 23).

On the political front, uncertainty prevailed as political parties in the opposition remained restless. Moreover, the Pakistan Tehreek-e-Insaf (PTI) gained a commanding majority in the Gilgit-Baltistan elections, which also prompted investors to remain on the sidelines.

Market activity suffered during the week under review as average daily volumes went down 41% to 171 million shares, while average traded value plunged 34% to $44 million.

In terms of sectors, negative contributions came from fertilisers (94 points), oil and gas exploration companies (81 points), and cement (67 points). On the flipside, major sectoral gains were observed in banks (28 points).

Scrip-wise, negative contributions were led by DAWH (68 points), OGDC (45 points), and SYS (44 points). Meanwhile, positive contributions were led by UBL (55 points) and MEBL (15 points). Foreign selling continued this week clocking-in at $6.6 million compared to a net sell of $7.4 million last week. Selling was witnessed in commercial banks ($4 million) and cement ($2.1 million). On the domestic front, major buying was reported by individuals ($6.5 million) and companies ($4.3 million).

Other major news of the week included; SBP projected 1.5-2.5% growth in FY21, specific funding approved to obtain effective Covid-19 vaccine, the government mulled circular debt to offset fiscal pressure, central bank forex reserves touched a 2.5 year high - reaching $12.9 billion, Pakistan and Russia signed amended gas pipeline accord.

Published in The Express Tribune, November 22^nd, 2020.

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