Daily Times

KARACHI: Pakistan Equities (KSE-100) inched up slightly by 0.06% or 24 points WoW to close at 38,586.

Average daily traded volume/value declined by 26% / 30%WoW to 121 million/ USD 40 million, respectively due to low liquidity and weak sentiments (as value investors await clarity on economic reforms and bailout packages).

On economic front, State Bank of Pakistan’s (SBP) foreign exchange reserves declined by 3.2%WoW (USD242mn) to USD7.3 billion as at December 7, 2018 (lowest since Jun-13). The decline came on the back of debt servicing and other official payments. Total liquid forex reserves held by the country stood at USD13.8 billion. As the country struggles with low reserves, confirmation on the receipt of USD 1 billion (second tranche of Economic Package from Saudi Arabia) by SBP official during market hours on Friday provided much needed breather to general and market sentiments.

According to the latest news flows, Asian Development Bank (ADB) has proposed USD 7.5 billion lending program for Pakistan over the next three years. Disbursement of funds would however be subject to approvals and would also depend on Pakistan’s ability to secure a bailout package from the International Monetary Fund (IMF) at the earliest.

During the week, Moody’s report on Pakistan’s economy painted a grim picture. While maintaining the rating at B3 (with ‘Negative’ outlook), the Agency highlighted high external account vulnerability, weak debt affordability, and very low global competitiveness in its analysis.

More importantly, Fitch Ratings has downgraded Pakistan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to “B-” from “B” on account of external financing risk, low reserves, elevated external debt repayments, continued deterioration in the fiscal position and a rising debt/GDP ratio. As per the Agency, “a successful conclusion of ongoing negotiations on IMF support could help stabilise external finances, but the programme would then face significant implementation risk”.

In terms of material corporate news flows, Engro Corporation (ENGRO) has concluded sale of its 24% stake in Elengy Terminal Pakistan (ETPL) to Vopak LNG Holding (VOPAK). ENGRO’s effective stake in ETPL would now stand at 56% (vs. 80% earlier). Based on transaction value of USD31.4mn, we estimate one-time after tax EPS impact of PKR5.7 – likely to be booked in Dec-18 financial results. The stock gained 2.5% during the week.

Listed Sectors showed a mixed trend whereby Oil and Gas Exploration, Fertilizer and Chemicals remained the major positive drivers contributing 117 points, 51 points and 47 points, respectively. However these gains were absorbed by Commercial Banks, Automobile Assemblers and Textile Composites contributing 62 points, 25 points and 23 points to the index decline, respectively.

In terms of returns, Textile Weaving and Chemicals remained the best performing sectors returning 13.4%WoW and 4.5%WoW, respectively. On the flip side, Insurance and Automobile Assemblers remained the worst performing sectors posting negative returns of 3.2% and 2.2%WoW, respectively.

Foreign selling stood at USD12.9 million for the week while domestic mutual funds also offloaded shares worth USD4.8 million. Once again, Insurance Companies stood out as major buyers, mopping shares worth USD7.9 million, followed by Individuals (USD7.2 million).

“Market has shed 8% from its November-2018 highs touched after the rally triggered by announcement of Saudi Economic Package. With the unwarranted exuberance now more than rationalized, we believe valuations have now once again opened up in mainboard – particularly in Commercial Banks and E&P stocks. Next two weeks may also witness some year-end window dressing by domestic institutions amidst low expected trading activity from foreign investors (owing to year-end holidays)”, Elixir Research Department’s report added.

Published in Daily Times, December 16^th 2018.