Pakistan stock market emerges as the 2nd best performing market in the region and 7th best performing market in the world. Historically we have seen healthy returns during the month of January and this month was no different. Infact KSE-100 returns (6.0%) have outperformed last 10-Yr average returns (4.1%) of January. The USD-based return for the month settled at 5.8%. 7MFY21 returns of the index have settled at 34.8% (USD-based: 41.4%).
The SBP announced its MPS this month, holding rates stable at 7%. For the first time ever the MPC gave forward guidance on its monetary policy, announcing that the policy rate is likely to remain stable in the near-term, while any monetary tightening when the need arises will be gradual and measured. Forward guidance provided much needed clarity to investors and to the business community and helped to evaporate any uncertainty over the interest rate outlook, which helped uplift sentiment in the local bourse. The rally during the outgoing month has primarily been led by confidence in the overall investment climate fueled by the ongoing robust economic momentum across the country. LSM showed a highly encouraging 14.5% YoY growth during Nov’20 which was at least a 12-Yr high. Moreover, remittances once again clocked in north of USD 2bn (USD 2.4bn during Dec’20) to provide crucial support to the external sector. However, the Current Account posted a deficit after 5 months of a surplus during Dec’20 (USD 662mn), taking the total surplus to USD 1,131mn during 1HFY21. On the inflationary front, the government’s efforts to address supply-side issues have managed to tame down inflation, which clocked in at 7.97% during Dec’20 (Nov’20: 8.35%).
The plan for circular debt clearance was also announced this month which lured bulls in the power sector. The said plan involves the first installment (40%) to be paid in February (33% cash, 33% Sukuk and 33% floater PIBs) while the remaining is expected to be paid in 6 months with same structure. The Technology sector also saw phenomenal gains during the outgoing month on the back of re-rating of the entire sector. IT exports posted a 44% YoY jump during Dec’20 while registering a 40% YoY increase during 1HFY21.
Other reasons for the optimism during January include the diluting political noise as the PDM protests seem to be a non-existential threat to the stability of the government. Moreover, jubilant activity across cyclical sectors are likely to translate into healthy earnings during the outgoing quarter which has also kept the sentiment upbeat. On the COVID front, average daily cases have come down from 2,635 cases in Dec’20 to 2,102 cases in Jan’21 while the infection ratio is down significantly from an average 6.9% in Dec’20 to 5.3% in Jan’21
(AHL)