Continuously improving macro-economic fundamentals did little to ignite positivity in the investment climate as rising COVID infections kept investors cautious. The Current Account posted another surplus (USD 382mn) during Oct’20 – fourth consecutive monthly surplus, taking the total surplus for 4MFY21 to USD 1.2bn. However rising daily COVID cases prevented any positive sentiment. This week infection touched 7.3% – a high of almost 4 months. Following Pfizer/BioNTech’s announcement, this week Moderna also announced an efficacy of 95% of its vaccine. KSE-100 index closed at 40,187 points, down 0.9% WoW.
Sector-wise negative contributions came from i) Fertilizers (94pts), ii) Oil & Gas Exploration Companies (81pts), and iii) Cement (67pts). Scrip-wise negative contributions were led by DAWH (68pts), OGDC (45pts), and SYS (44pts). On the flipside, major sectoral gains were observed in Banks (28pts) while scrip wise positive contributions were led by UBL (55pts) and MEBL (15pts).
Foreign selling continued this week clocking-in at USD 6.6mn compared to a net sell of USD 7.4mn last week. Selling was witnessed in Commercial Banks (USD 4.0mn) and Cement (USD 2.1mn). On the domestic front, major buying was reported by Individuals (USD 6.5mn and Companies (USD 4.3mn). Average volumes arrived at 171mn shares (down by 41% WoW) while average value traded settled at USD 44mn (down by 34% WoW).
Other major news: i) Pakistan posts current account surplus of $382mln in Oct, ii) SBP expects 1.5-2.5pc growth, iii) Specific funding approved to obtain effective Covid-19 vaccine, iv) FDI increases 9.1pc to $733.1mln in July-October, and v) Govt mulls circular debt tax to offset fiscal pressure
Outlook and Recommendation
We highlight the deteriorating scenario on the COVID front as a major risk for local investment climate. Albeit the government has so far avoided a nation-wide complete lockdown which, if imposed, could be seriously adverse for the bourse. That said improving economic fundamentals and strong corporate profitability trends may revive market sentiment once risks associated with COVID subside. Our top picks are OGDC, HUBC, HBL, MCB, FFC, LUCK, ENGRO, ILP, AVN and NML. The KSE-100 index is currently trading at a PER of 7.1x (2021) compared to Asia Pac regional average of 15.1x and while offering DY of ~6.3% versus ~2.5% offered by the region.
BMA Capital Management Ltd.