The stock market depicted a vigorous performance in the first month of FY21 with the local equity bourse closing at 39,258 points, up by 4,837 points and translating to a return of 14.05% MoM (USD-based return of 14.78% MoM) in Jul’20. This was the best performing month of July in 17 years (last high in 2003). Sentiments at the KSE-100 index have been rejoiced by several rate cuts by the SBP (625bps in total) which have once again brought equities to the forefront as the preferred asset class, while improvement in the domestic COVID-19 infection and recovery rates, stability in the PKR-USD parity amid monetary support from multilateral institutions, end of corona-induced lockdown as well as reinstatement of pre-corona market hours aided volumes and attracted investment in the market.
Positive momentum was witnessed throughout the month of Jul’20 starting with approval of the FY21 Federal Budget in the National Assembly. This was followed by jump in reserves of the State Bank of Pakistan (with inflows from multilateral institutions) reversing the PKR-USD parity to 166/USD level from PKR 168/USD Jun’20 closing). Whereas progress on vaccines to produce immune response to COVID-19 aided a swift rally in International bourses, which alongside improvement in local infection ratio, translated to positivity at the KSE-100 index. We also cite cumulative rate cuts of 625bps in the SBP’s policy rate to 7% as a key factor behind market performance, since this once again reinstated equities as the preferred asset class.
Economic Developments
Current Account Deficit (CAD) for the month of Jun’20 witnessed at USD 96mn compared with a deficit of USD 981mn during Jun’19. May’20 CAB has also been revised to a surplus of USD 344mn from surplus of USD 13mn. The primary reason for decline in CAD remained a 13% YoY (USD 633mn) decline in total imports along with 51% YoY (USD 830mn) rise in remittances. However, total exports also declined by 12% YoY (USD 263mn). During FY20, CAD dipped by 78% YoY to USD 2,966mn. Decline in CAD was witnessed due to 30% YoY decline in the total trade deficit to USD 22.8bn compared with USD 32.6bn during same period last year.
Remittances by overseas Pakistanis registered an increase of 51% YoY to USD 2,466mn during Jun’20 compared to USD 1,636mn during Jun’19. On a MoM basis, they went up by 32%. The country wise data reveals that inflows from KSA, UAE, USA and UK amounted to USD 619mn (+85% YoY, +42% MoM), USD 432mn (+21% YoY, +33% MoM), USD 452mn (+69% YoY, +7% MoM) and USD 401mn (+49% YoY, +41% MoM), respectively. During FY20, remittances went up by 6% YoY to USD 23,121mn compared with USD 21,739mn during FY19.
Foreign Direct Investment (FDI) during Jun’20 was witnessed at USD 175mn compared to net inflow of USD 102mn during Jun’19. During FY20, FDI has witnessed an increase of 88% YoY to USD 2,561mn. China remained the largest investor with net FDI of USD 844mn during FY20 in contrast to USD 131mn during same period last year. Norway was the second largest investor with net FDI of USD 402mn during FY20 vis-à-vis net investment of USD 116mn during same period last year. During FY20, major investment poured in the Power sector (USD 764mn) followed by Communications Sector (USD 664mn) and Oil & Gas Sector (USD 311mn). (AHL Research)