The market slipped again this week as APG (Asia-Pacific Group, a regional affiliate of the Financial Action Task Force – FATF) retained Pakistan on its enhanced follow-up list based on the country’s performance up until Feb’20, while concerns over rising inflationary levels, news flow citing hurdles over continuation of the IMF program, and aggression from the opposition also dampened sentiment at the index. Although Remittances attaining the above USD 2bn level for the fourth consecutive month in Sep’20 (up by 31% YoY) and suspension of poor nations’ debt repayment by the G20 for another six months, provided respite. We do highlight that foreign markets remained jittery as well with the US Presidential election only a few sessions away. The benchmark KSE-100 index closed at 40,164points (down by 1.6% / 634 points WoW).
Sector-wise negative contributions came from i) Oil and Gas Exploration Companies (212points), ii) Cement (116pts), iii) Power Generation and Distribution (60pts), iv) Oil and Gas Marketing Companies (56pts), and Technology & Communication (51pts). On the other hand, positive contributions were led Chemical (16pts) and Commercial Banks (10pts). Scrip-wise top negative contributors were HUBC (69pts), PPL (68pts) and OGDC (63pts).
Foreign selling continued this week clocking-in at USD 2.7mn compared to a net sell of USD 7.5mn last week. Selling was witnessed in E&P (USD 2.8mn) and Cement (USD 0.8mn). On the domestic front, major buying was reported by Banks / DFIs (USD 7.6mn and Insurance Companies (USD 2.4mn). Average volumes arrived at 296mn shares (down by 29% WoW) while average value traded settled at USD 61mn (up by 24% WoW).
Other major news: i) Global GDPs to shrink in 2020-21: IMF lowers Pak GDP to 1 pc, unemployment rate to worsen, ii) UK hopes excellent FATF report for progress on key benchmarks, iii) Two RLNG pipelines from south to north will be built: ISGS MD, iv) Remittances surge 31% to USD 7.14bn, v) Tax intake: Pakistan to face additional hurdles: Moody’s, and vi) G20 suspends poor nations’ debt payments for six more months.
Outlook and Recommendation
The stock market next week will be dictated by FATF’s plenary session scheduled to be on 21st to 23rd Oct’20. Whereas reappearance of COVID-19 infection ratio to over 2% may also trigger another smart lockdown in big cities. We advise investors to keep a long view and invest in fundamentally strong scrips. Our top picks are OGDC, HUBC, HBL, MCB, FFC, ACPL, ENGRO, ILP, AVN and NML. The KSE-100 index is currently trading at a PER of 7.3x (2021) compared to Asia Pac regional average of 13.9x and while offering DY of ~6.3% versus ~2.7% offered by the region.