Daily Times

Fears of conviction of Sharif Family over graft case and resulting concerns on timely elections sentPakistan Equities plunging with benchmark index falling 3.9% or 1623 points week-on-week (WoW) , wiping out the entire gains for 2018.

Market activity remained dull with average daily traded value/volume declining by 42%WoW/39%WoW to $35 million/111million respectively.

It all started when Accountability Court announced late on Tuesday (after market close) that they have finalized but reserved their verdict against the Sharif Family in the Avenfield Reference case – one of the three corruption cases that Ex-Premier Nawaz Sharif and his family are facing in light of the Supreme Court’s verdict in the Panama Papers case last year.

Fearing the worst, KSE100 plunged 2.9% the next day marking the biggest single day decline in almost eleven months.

During late trading hours Friday, Accountability Court sentenced Nawaz Sharif, Maryam Nawaz and Captain Safdar to 10, 7, and 1 year jail time, respectively. They were fined GBP10mn besides confiscation of their Avenfield properties. Maryam and Captain Safdar were also barred from contesting elections for 10 years. However, market shrugged off the decision as it closed marginally higher.

On economic front, inflation reached 2-year high of 5.2%YoY led by food and energy inflation. Theformer was mainly attributable to Ramadan effect whereas the latter was a result of increase in petroleum product prices as the interim government decided to pass on increase in international oil prices.

Among the major developments in equities, K-Electric’s (KEL) base tariff was kept largely unchanged at PKR12.82/KWH under recent reconsideration request vs. PKR12.77/KWH determined earlier.

Foreign investors and Mutual Funds remained the major net sellers as they sold shares worth $ 8.7 million and $18.6 million during the week, respectively. This selling was mainly absorbed by Individuals and Banks with net buying of $9.3 million and $7.4 million, respectively.

Now that Accountability Court’s decision is out of way, fears of election boycott by PML-N will raise questions on timely elections. Besides, heightened external account imbalances and deteriorating foreign exchange reserves (<2months import cover) remain another key concerns for investors. Furthermore, incessant foreign selling has created further pressure on valuations. With these expected to persist for the time being, resulting risk-off sentiment is expected to keep market in consolidation phase until elections take place on time, economy starts showing improvement and foreign selling abates, said a report of Elixir Research Department.

Published in Daily Times, July 8^th 2018.