Pakistan Stock Exchange benchmark index gains 1,261 points to close at 47,494 level

Pakistan Stock Exchange (PSX) remained positive throughout the week ended on October 06, 2023. The benchmark index gained 1,261 points to close at 47,494 level.

In a meeting with the Senate Standing Committee on Finance, Dr. Shamshad Akhtar made a promising statement that the caretaker government will deliver on the IMF program to secure US$700 million under the SBA. 

Pakistan is also seeking foreign investments from Saudi Arabia in Reko Diq’s copper and gold mining projects while companies like OGDC, PPL, and GHPL are contemplating on selling their partial or full stakes in an attempt to boost the country’s foreign exchange reserves.

As of September 28, 2023, foreign exchange reserves held by State Bank of Pakistan (SBP) declined by US$21 million to US$7.62 billion, while country’s total foreign exchange reserves were reported at US$13.03 billion.

International oil prices of Brent and WTI were on a steady decline and closed at US$83.88/barrel and US$82.08/barrel, which was reflected in the latest revision in local petrol and HSD prices.

Trade deficit for September 2023 was reported at US$1.49 billion, down by 30%MoM when compared to US$2.1 billion in August 2023.

CPI rose to 31.4% in September 2023 when compared to 27.4% in August 2023, amidst higher fuel prices and a lower base last year.

Overall, average trading volumes was reported at 291 million shares as compared to 202 million shares a week ago.

Other major news flows during the week included: 1) Government debt hit historic high of PKR 64 trillion by August end, 2) Foreign debt ratio exceeded 38% of total public debt in FY23, 3) September 2023 cement dispatches decline by almost 4%YoY, 4) Cotton arrivals rose by 29% but Punjab faced setback, 5) Money supply shrank by 1.3% in Q1 as cash holdings drop, 6) A 50bps hike in policy rate added PKR300 billion to domestic debt, 7) SBP mopped up PKR104.8 billion through PIB auction, and 8) Textile exports declined 12% to US$1.35 billion in September 2023.

Engineering, Refinery, and Cable & Electric goods were amongst the top performing sectors, whereas, Synthetic & Rayon, Vanaspati & Allied Industries, and Close end mutual funds were amongst the worst performers.

Major net selling was recorded by Brokers (US$3.48 million) and Mutual Funds (US$0.2 million). Banks and Companies absorbed most of the selling with a net buy of US$13.6 million and US$2.1 million respectively.

Top performers during the week included: KEL, ISL, AGP, CNERGY, and PGLC, while top laggards were: JDWS, PSEL, IBFL, THALL, and HINOON.

Going forward, the market's performance is anticipated to be significantly influenced by the upcoming IMF review scheduled for November.

Regarding the political landscape, while the expected timeline for elections is given, providing exact dates for the elections would be a positive development.

Additionally, upcoming inflation readings and current account data would remain in the limelight.

Overall, analysts continue to advise investors to remain cautious while investing and consider companies with strong fundamentals and high dividend-yielding companies.

 

 

PSX benchmark index gains 1.5%WoW

Pakistan Stock Exchange remained range-bound during the week ended on September 08, 2023, with the benchmark index KSE-100 marginally fluctuating in the slim range of 654 points. The fear of interest rate hike due to the increase in the T-Bills yields kept the market activity in check. However, positive developments over SIFC and the caretaker prime minister’s announcement of total expected inflows of US$50 billion from UAE and Saudi expected to materialize in the next 4-5 years added a substantial layer of positivity to this multifaceted narrative.

The KSE-100 index closed at 46,013 points with a gain of 1.55%WoW. Meanwhile, market participation declined by 26%WoW, averaging at 138 million shares. On the currency front, rupee strengthened against the greenback. Moreover, administrative measures yielded positive results, taking the gap between interbank and open market below 1% which was around 5% a week ago.

August trade deficit widened by 29.8%MoM to US$2.126 billion as compared to US$1.637 billion in July.

The foreign exchange reserves held by the State Bank of Pakistan (SBP) by US$70 million to US$7.8 billion as of September 01, 2023.

Other major news impacting the market include: 1) August 2023 petroleum sales declined 8%YoY to 1.41 million tons, 2) August cement dispatches rose by 37%YoY to 4.518 million tons, 3) Pakistan’s public debt surged 22% to PKR61.75 trillion in July and 4) IMF allowed leeway on electric bills, raises gas prices by 50%.

Sector-wise, Close-End Mutual Fund was the worst performer, while Transport, Automobile Parts & Accessories & Inv. banks/ Securities cos. were amongst the top performers.

Flow-wise, major net selling was recorded by Mutual Funds with a net sell of US$2.4 million. Individuals absorbed the selling with a net buy of US$3.6 million.

Top performing scrips were: GADT, DAWH, ILP, THALL, KAPCO, while the Laggards included: JWDS, ARPL, BAHL, EFUG and INDU.

Going forward, market is expected to remain range-bound due to the upcoming Monetary Policy Committee meeting on September 14, 2023.

Furthermore, government’s steps over energy reforms, and next review with the IMF may improve the market sentiments.

Analysts continue to advise investors to remain cautious while taking positions and invest in companies with strong fundamentals or high dividend-yielding scrips.

 

New expressions being used to describe Pakistan-IMF relations

Some scary words were heard about Pakistan politics and economy on Thursday about. Historically, politics has always remained volatile in Pakistan. However, the current status of economy needs utmost as well as immediate and focused attention of all the stakeholders.

A statement came out from IMF yesterday morning saying that the Fund remains engaged with Pakistan on the program, despite the recent happenings in politics which give some confidence to market participants.

However, the same statement says that the country will ‘durably allow, market-based exchange rate and will scrap the fuel subsidy program. PKR depreciated and was very close to crossing the PKR300 mark.  

Another IMF statement on Pakistan yesterday said that the country requires ‘significant’ more financing in order for IMF SLA to go through.

The explicit meaning of ‘durably allow’ and ‘significant’ is very unclear right now as it is difficult to understand what exactly more is required from the IMF side.

Finance Minister also spoke in an event yesterday saying we will not accept IMF demands any more as a lot has already been done and Pakistan will not default, without the IMF.

It appears he meant to say Pakistan will not default without IMF under his remaining tenure which is of less than 3 months now before the term of current government ends.

 

It is not an appropriate time for Pakistan to issue US$ denominated Eurobonds

There are reports that Pakistan is getting ready to issue US$ denominated Eurobonds of more than US$2 billion over the next few days. The settlement date for the issue is likely to be 6th April 2021. However, some analysts are of the view that it is not an appropriate time to go for this adventure.

Initial indications suggest that 5-year bond’s bids to be between 6.0-6.5%, 10-year bond’s between 7.2-7.7%. Interestingly, Pakistan is also trying to sell Eurobonds having a tenor of 30 years at a yield of close to 8.5-9.0%.

They say, currently US$ exchange parity is on the slide and further erosion in value is anticipated as Ramadan gets closer. They anticipate an influx of more than US$2.5 billion over the next 30 days, which may push the parity below Rs148.

They go to the extent of saying that Pakistan should capitalize this opportunity, as no interest payment will be required. The want State Bank of Pakistan (SBP) to work out a band, in which parity should be allowed to move. The central bank should start buying when parity goes below the threshold point or start selling which parity crosses upper limit.

They believe the central bank has ample supply of local currency in its coffer and in the worst scenario can print more. In this scenario the biggest collateral will of the added foreign exchange reserves.

Currently, Pakistan’s US$ denominated bond yields around 5.9% (having maturity in 2027) in the secondary market. The average yield over the last 3-months for the same is around 5.8%.

We believe this re-entry of Pakistan in international capital markets will support investors’ sentiments. Regardless of the yield, the size of these bonds will provide much needed support to Pakistan foreign exchange reserves that are currently adequate for 3 months of import only.

S&P and Moody’s presently rate Pakistan as B- with stable outlook and B3 with stable outlook.

Recently Egypt having S&P rating of B and Moody’s rating of B2 (one notch above Pakistan), raised US$3.75 billion. Egypt sold 5-year worth US$750 million at 3.875%, 10-year bonds worth at US$1.5 billion at 5.875% and 40-year bonds worth US$1.5 billion at 7.5%.

Pakistan Rupee (PKR) vis-à-vis US$ has climbed to a 22-month high, gaining around 3% during the last month and 9% from its bottom touched on 20th July 2020.

Pakistan floated its first bond in international market during 1994 and then in 1997.

The first bond was launched on Dec 22, 1994 at 11.5% with amount raised being US$150 million. This was followed by US$160 million and US$300 million bond in Feb-May, 1997 at 6% and Libor + 395bps, respectively.

Later due to international restriction after nuclear testing Pakistan was unable to tap international market. However, Pakistan reverted back to international market in 2004 as better macroeconomic indicators resulted in improved ratings.

In FY05, Pakistan issued 5-year Eurobond and raised US$500 million at rate of 6.75%.

In FY06, Pakistan issued US$600mn in 5-year Sukuk issuance at rental rate of 6M LIBOR plus 220bps.

In FY07, Pakistan issued total US$800 million by issuing two Eurobonds of worth US$500 million (7.125%, 10 year) and US$300 million (7.875%, 30 year) each.

After gap of 7 years, Pakistan mobilized US$2 billion in April 2014 by issuing 5 and 10 year bonds at 7.25% and 8.25%, respectively.

In November 2014, Pakistan issued Sukuk of US$1 billion (already matured in December 2019) at 6.75%.

In September 2015, Pakistan issued 5-year Eurobond of US$500 million at 8.25%. In Oct-2016, Pakistan issued 5 year Sukuk of US$1 billion at a lowest rate of 5.5%.

In last issue of November 2017, Pakistan raised US$2.5 billion by offering 5-year Sukuk of US$1 billion and 10-year Eurobond of US$1.5 billion at 5.625% and 6.875%, respectively.