For the week ended July 22, 2016 the benchmark of Pakistan Stock Exchange PSX-100 closed almost flat as compared to a week ago. The market managed to close above 39,000. However, the overall performance was not disappointing. CYTD returns were reported at above 19 percent. Additionally, the month to date foreign inflow of US$31.7 million is a strong indicator for foreign investments picking pace, following Pakistan’s re‐entry into the EM club.
News flow impacting market during the week included: 1) in the T‐Bill auction conducted on Wednesday, cut‐off yields for 3, 6 and 12 months posted decline, where banks aggressively participated in the auction with bids amounting to Rs740.9 billion against the target of Rs200 billion, 2) net inflow of almost $600 million from China, foreign direct investment (FDI) in Pakistan surged 38.8% as Pakistan received FDI of US$1.28 billion during 2015-16, which was US$358.2 million higher than receipts a year ago.The unusual jump in FDI in the last month of 2015‐16 was on the back of an inflow of US$138.5 million in the telecommunications sector, 3) SECP has formally sent the final draft of the Companies Bill, 2016 to the Ministry of Finance for initiating necessary legislative process and its approval by the Parliament and 4) Textile exports went down by one billion dollars during last financial year due to massive decline in cotton crop production and slowdown in the economy of China pushing Pakistan's textiles and clothing exports to US$12.45 billion during FY16.
Leaders exhibiting performance over the week were: ASTL, NCL, and PSMC (+7.1%WoW), while laggards were FFBL, DAWH and HASCOL. Average daily traded volume grew by 7%WoW to 207 million shares, where SNGP, DFML and PAEL were the volume leaders.
Considering the stellar run‐up in the last quarter of the outgoing FY16 gaining 10.7% during the period), analysts expect the market to enter a consolidation phase. Directionless trading in the absence of major triggers may prevail. Market participants are advised to closely follow: 1) political developments as the opposition plans to protest against inaction on Panama leaks investigations, 2) fertilizer offtake numbers for the month of June'16, gauging the sensitivity of recent subsidies on demand and, 3) details of GoP policy measures in response to the final meeting with the IMF over the release of EFF's last tranche (negotiations start July 27th). Additionally, earnings announcement may fuel strong sentiment for consensus beating stocks.
Firming up in June'16, the global commodity index rose by 3.5%MoM. While losing some ground on account of Brexit and a strengthening US$ as a consequence, oil prices consolidated around US$48/bbl whereas prices of coal were up 6.4%MoM on supply disruptions in major markets and cotton witnessed easing supply concerns depicted strength during the month under review. Steel and Urea prices declined on account of excess supplies amid a weak demand outlook. While recovery has been steady during June’16, most commodity prices still remain at their multi‐year lows. Analysts expect prices to consolidate going forward; however a sustainable reversal of the downtrend remains contingent on an improving demand scenario.
Current Account deficit for June'16 was recorded at US$61 million lower than US$252 million in June'15 (US$792 million in May'16) where higher trade deficit was countered by healthy remittance flow for the month was US$2.07 billion, up 13.8%YoY. This implies, FY16 current account marking a deficit of US$2.52 billion, lower 6.8%YoY reflecting: 1) expanding trade deficit, up +8%YoY as weak exports restricted savings from oil imports, 2) steady remittance inflows (up 6.4%YoY) and 3) US$713 million CSF payments. Going forward, analysts expect slight pressures to mount and project current account to post deficit of US$5.1 billion in FY17 with trade deficit increase of 11%YoY: on 1) US$45/bbl assumption for crude oil and 2) limited recovery in exports on low cost competitiveness. However, positive surprises can emerge if CSF payments materialize (US$900 million approved for next year) and on higher than expected growth in remittances.