The benchmark index of Pakistan Stock Exchange (PSX) closed
at an all‐time
high of 42,849 points for the week ended 11th November 2016. Average
daily traded volumes inched up by 2%WoW to 494 million shares where volume
rankings continued to be occupied by second tier scrips such as: BOP, PIAA,
TRG, TELE and SSGC. Leaders during the outgoing week included: AGTL, MLCF, SSGC,
FCCL and FFBL while laggards included: SHEL, KEL, HUBC, OGDC and NBP.
Key developments during the week included: 1) almost 22%YoY
increase in trade deficit to US$9.32 billion during first four months of
current financial year, 2) a 3.83%YoY decline in workers' remittances to
US$6.26 billion, 3) increase in cutoff yields of Treasury Bills of 3 and 6
months tenors, while all the bids for 12-month papers were rejected, 4) the
GoP’s plan to issue international Sukuk Bonds worth US$500 million against
Islamabad Lahore Motorway for budgetary financing and 5) nearly 13%YoY growth
in total cement dispatches to 3.527 million tons in October 2016 due to a rise
in infrastructure development.
Though, political tension eased off with PTI calling
off its protest, political risk remains as Panama‐gate’s
next hearing is scheduled for 15th of this month. However, analysts
expect market to continue its rally led by heavyweight sectors like cements and
banks. The monetary policy to be announced later this month is expected to
maintain status quo. Also, OPEC meeting later this month in order to decide
production cuts may provide boost to E&Ps.
Results for the US presidential elections place Donald
Trump as the US President Elect. While analysts believe that the US foreign
policy under Trump presidency can be volatile in nature, there is also a
possibility of an overhaul in US‐Pak relations. The
republican's campaign rhetoric compels analysts to believe that micromanagement
and unilateral actions along Pakistan's borders may ease out under Trump
presidency.
In this backdrop, Pakistan has done well by diversifying
its foreign relations towards Russia (joint military exercise recently
conducted in Pakistan) and China's ongoing ambitions in investing heavily into
Pakistan. In line with global markets, near term volatility at the PSX also
cannot be ruled out. However, Pakistan market's correlation with regional
markets has decoupled on the former's possible inclusion in the MSCI EM Index
and momentum for infrastructure and economic development together driving
21%CYTD returns for the benchmark index which is expected to continue in the
medium to long term.
Dull exports in continuation of what has been the
unflagging trend now, Pakistan exports remained on the lower side for September
2016 at US$1.52 billion as compared to US$1.72 billion for September 2015, down
11%YoY. Total exports registered a decline across all segments, with the
highest impact coming from heavyweights Textiles and Food sectors, which were
US$961.0 million / US$238.8 million, sliding by 12.1%YoY / 14.7%YoY. Consequently,
1QFY17 total and textile exports were recorded at US$4.68 billion and US$3.03 billion
respectively, marking a decline of 9%YoY and 6%YoY.
Going forward, analysts expect textile exports to
continue remain under pressure due to: 1) slowing Chinese demand, 2) lack of
currency competitiveness limiting GSP plus benefits, 3) concerns of an economic
slowdown in the EU following Brexit, constituting 20%‐25%
of textile exports, and 4) shortage of cotton supply after tapering cotton
production last year with arrivals down by 34%YoY. However, the soon‐to‐be
announced export incentive package worth Rs175 billion by GoP, in a bid to
reduce the cost of doing business and enhance competitiveness of export‐oriented
industries with regional countries, remains a key near‐term
trigger for the sector.
Forecasting steady spell of growth for OEMs in the
country, sector experts analyze the current value proposition of the three
major assemblers, being Japanese in origin. Highlighting the positioning of
each in the prevailing market structure, analysts point to avenues for
deepening demand of locally produced offerings. Commenting on the rise of Japanese
OEMs in the region, they look at falling demand in traditionally high growth
markets (Thailand, Malaysia) as a reason to aggressively introduce new
offerings, as CKD units are freed up, and may be diverted to high growth
markets. FTA being discussed through bilateral arrangements (Thailand, Turkey
and Korea) may further this move, but on the flipside, favor new entrants. The
case of low price, eco segment vehicles making up a large portion of
first time car purchase, in the region, particularly in Thailand may be implemented
at home. Price competitive offerings in the 1000CC and below segment make up to
50% of overall passenger sales, while the small economy segment (below 800cc)
dominates the import market (4,417 units imported in 2MFY17 making up 52% of
total imports).
