Equities at the local bourse witnessed another week of dull performance, with the index declining by 179pts WoW to close at 46,957 level. The broad index tumbled below the 47,000 barrier, moving in between a narrow range of 46,873pts and 47,629pts. Taking cues from soaring commodity prices, an all-time high trade deficit data, weak PKR/USD parity, and uncertainty around foreign outflows after Pakistan’s potential downgrade to Frontier Market Index, investors stayed cautious and booked profits. The average trading volumes clocked-in at 461Mn shares (↑ 20% WoW), whereas daily traded value averaged at USD 83Mn (↑ 5% WoW).
Lack of positive triggers kept investors in a quandary: With the rollover week coming to an end and hopes of strong corporate earnings announcements, the market opened the week on a positive note as the index surged by 229 points on Monday. However, tension in the geopolitical region and uncertainty around Pakistan’s potential downgrade from Emerging markets (EM) to Frontier markets (FM) kept investors concerned about foreign outflows. Additionally, the PKR/USD parity continued its slide, hitting a one-year low of ~PKR 167 (↓ ~1% WoW) this week due to pressure on the external account front from high import payments and debt servicing. Furthermore, an all-time high trade deficit of USD 4.1Bn in Aug’21 and dismal CPI reading (8.4% YoY in Aug’21 compared to 8.2% in SPLY) also contributed to the lackluster sentiments later in the week. Despite positive news of SBP reserves reaching news highs of USD 20.1Bn after IMF inflows of ~USD 2.7Bn under revised global SDR allocation, overall, the trading activity remained subdued due to lack of near-term triggers.
Sectors that stayed in the limelight during the week included cements that remained under selling pressure due to record-high global coal prices that surpassed USD 150/ton. The energy chain also witnessed increased participation due to market buzz about the government finalizing the much-awaited Pakistan Oil Refinery Policy 2021, and surging oil prices. Brent and WTI closed the week near USD 73.5 and USD 70.2 per barrel (↑ 1.1/2.1% WoW), respectively, as U.S. Gulf Coast energy companies struggle with recovery post-Hurricane Ida.
Major data releases which kept the investors engaged included 1) weekly SBP reserves, which surged by ~15% WoW to USD 20.1Bn; 2) Trade balance data, which showed a widened deficit of USD 7.3Bn during 2MFY22 against USD 3.4Bn in the SPLY; and 3) Total Petroleum sales during 2MFY22, which improved by 21% YoY to 3.9Mn tons. Another important event during the week included the book-building of Air Link’s Initial Public Offer (IPO) which concluded with an oversubscription of 1.6x at a strike price of PKR 71.5/sh, indicating presence of ample liquidity in the market and investor interest in exploring new sectors.
Going forward, we reiterate our positive outlook on the equities market given the government’s accommodative monetary policy stance and potential resumption of the IMF program. Meanwhile, the MSCI review next week and concerns over COVID-19 fourth wave may keep investor sentiments skittish, however, the vaccination drive in the country is in full swing and the economic growth story still remains intact. Hence, any short-term corrections may be taken as an opportunity to accumulate positions in Banks, Steel, Cement, Fertilizer, and Autos sectors.
Courtesy – BMA Capital Management Ltd.