Bears tighten grip amid political chaos

Benchmark KSE-100 index drops 1,073 points to settle at 41,140

KARACHI:

The Pakistan Stock Exchange (PSX) remained in the grip of bears for most of the outgoing week as political chaos did not allow investors to take fresh positions and crushed their confidence. The rapidly changing political scenario, coupled with thin investor participation, dragged the benchmark KSE-100 index below the 42,000-point mark. At the beginning of the week, the investors cherished the anticipated removal of Pakistan from the Financial Action Task Force’s (FATF) grey list after four years.

As a result, the market commenced trading on a positive note. Furthermore, the approval of a $1.5 billion emergency loan by the Asian Development Bank (ADB) rejuvenated buying interest and the index managed to close the day in the green. However, investor sentiment flipped on Tuesday and the market could not sustain gains in the rollover week due to the absence of positive triggers. The decline continued as Pakistan Tehreek-e-Insaf (PTI) Chairman Imran Khan announced the beginning of a long march, triggering selling pressure and fear among market participants, which dragged the index below the 42,000-point mark.

Market participation remained thin because of a lack of positive triggers and political uncertainty. Consequently, the index closed another session in the red. In addition, the rupee depreciated against the US dollar, which further dented investor interest. The KSE-100 index recorded a sharp decline in the last trading session when investor participation dropped as political turmoil deepened following the beginning of PTI’s long march on Friday. The market closed at 41,140, down 1,073 points, or 2.5%, from the previous week. “KSE-100 witnessed a negative trend throughout the week, primarily driven by the rising political temperature, and closed at 41,140 points, down 2.5% weekon-week,” said JS Global analyst Wasil Zaman in a report.

Investor participation dipped by 6% week-on-week with average volumes coming in at 214 million shares. Key underperformers were the automobile (-5.4%), cement (-4.8%) and oil and gas (-4.2%) sectors, he said. Foreigners turned net buyers during the week ($1 million) with the highest buying in the tech sector ($1 million), followed by the oil and gas sector ($0.8 million). On the news front, the KSE-100 reacted positively to Pakistan’s exit from the FATF grey list after four years before recording the downtrend amid political uncertainty.

SBP’s foreign currency reserves fell by $157 million week-on-week to $7.4 billion while the release of $1.5 billion by the ADB was expected to reflect in next week’s reserves. PM’s visit to China was expected to help expedite work on CPEC projects along with $6.3 billion debt rollover whereas the Saudi crown prince was likely to visit Pakistan soon. After back-to-back meetings with Finance Minister Ishaq Dar, the fertiliser industry agreed to slash DAP prices whereas pharmaceutical manufacturers agreed to resume production of Panadol, which had gone short in the market due to higher production cost, the JS analyst said. Arif Habib Limited, in its report, said that the stock market commenced week on a positive note as Pakistan exited the FATF grey list.

However, “the momentum shifted towards the red zone since former prime minister Imran Khan announced plans for a long march”. Furthermore, Pakistani rupee remained under pressure against the greenback, closing at Rs222.47, down by Rs2.06, or 1%, week-on-week. In addition to that, SBP’s reserves went down to $7.4 billion with a fall of $157 million due to external debt repayment. During the week, Pakistan’s five-year credit default swap (CDS) crossed the 50% mark (the highest level since November 09), Arif Habib report said. The market closed at 41,140, losing 1,073 points (or 2.5%) week-on-week. In terms of sectors, positive contribution came from fertiliser (31 points), automobile parts (4.6 points) and vanaspati (0.22 point).

Negative contribution came from cement (208 points), technology (162 points), E&P (126 points), automobile assemblers (106 points) and power (85 points). Stock-wise positive contributors were Engro Fertilisers (39 points), Faysal Bank (28 points), Systems Limited (53 points), Pakistan Oilfields (22 points) and MCB Bank (21 points). Negative contribution came from TRG Pakistan (159 points), Pakistan Petroleum (99 points), Lucky Cement (96 points), Millat Tractors (70 points) and Pakistan State Oil (67 points), the report added.

Foreigners continued to buy stocks during the week under review, making purchases of $0.97 million compared to net selling of $3.4 million last week. On the local front, selling was reported by mutual funds ($3.3 million), followed by individuals ($2.4 million). Average daily volumes came in at 214 million shares (down by 6% week-on-week) while average traded value settled at $28 million (down by 1% week-on-week).