The market continued to trade in the 41-42k range in search of triggers however, underwent some recovery in the outgoing week on the back of softening trade and services deficits. Political tensions remained high and caught more traction following the assassination attempt on ex-premier Imran Khan who launched a rally towards Islamabad last week in a bid to convince the incumbent government into calling general elections. The attempt proved unsuccessful however, has paved the way for heating up of the political atmosphere as the PTI lawmaker bids to continue the struggle.
On the economic front, inflation for the month of Oct’22 surged to 26.6% YoY on the back of higher than expected food inflation and utilities. Another notable development during the week that failed to appease the market was the PM’s inaugural visit to China where many expected outstanding debt rollovers or at least relaxed payment terms given the external account pressures however, nothing of that sort was reported. Interestingly, the Finance Minister gave SBP the go ahead to process LC’s up to USD 100,000 which we opine will come as a welcome sign for importers. Similarly, the SBP allowed exchange companies to utilize up to 20% of the remittances they receive in order to ease the foreign currency shortage in the local market while also narrowing the gap between the interbank and the open market rate which has now exceeded PKR 10/USD. Resultantly, PKR recorded mild gains of 0.2% WoW to close at 221.9. As for the KSE-100’s performance, the market made highs and lows of 42,176pts and 41,721pts respectively to settle at 41,856pts (↑1.7%, 716pts WoW). Traded volumes were recorded at 69Mn (↓16.6% WoW) shares while traded value was reported at USD 17Mn (↓19.1% WoW).
Market awaits triggers from the economic front; political landscape not helping: Much was expected from the PM’s visit to China earlier this week but to date there has not been any major development on that front particularly with regards to outstanding external debt structuring. The market keenly awaits positive developments on the economic front to surpass the current range of 41-42k. Though, economic indicators have improved to a certain extent but still lag in bringing investor optimism back to the local bourse. Furthermore, talks of a mini budget if fiscal collection targets are not achieved have also kept investors wary. Last but not the least, political noise continues to hamper both market participation and sentiment as the investor base seeks greater clarity regarding general elections.
Major data releases during the week included: 1) CPI inflation for the month of Oct’22 surged to 26.6% YoY, 4.7% MoM; 2) Trade deficit for 4MFY23 declined 26.6% YoY to USD 11.5Bn, exports increased by 0.9% YoY to USD 9.5Bn while imports decreased by 16.2% YoY to USD 21.0Bn; 3) Services deficit for 4MFY23 receded by 26.2% YoY to USD 647Mn compared to USD 877Mn in the SPLY; 4) T-bills auction held during the week fetched PKR 454Bn against a target of PKR 600Bn as cut-off yields remained unchanged; 5) Cement sales for Oct’22 underwent a 18.5% YoY decline to 4.3Mn tons (4MFY23-13.9Mn tons;↓23.1% YoY) and 6) Petroleum sales for Oct’22 receded by 16.5% YoY to 1.7Mn tons (4MFY23-6.15Mn tons;↓21.7% YoY).
Outlook: As we have repeatedly highlighted, political tensions will continue to take center stage and likely dictate market performance in the near term. Upcoming IMF review and foreign currency inflows will provide further clarity on the economic front while there remains little doubt that the market trades at cheap multiples and has largely incorporated the negatives. Any positive development can trigger index performance in the near term. Exposures should be maintained in E&P’s, Banks, IT, Fertilizers & Cements.
Courtesy- BMA Capital Management Ltd.