United States: Boon or busted after Trump

As a student of Geopolitics in South Asia and MENA, I have repeatedly held the United States responsible for the turmoil in the region. I had even gone to the extent of saying that United States is the biggest warmonger. The super power loves to initiate a conflict that goes to the extent of anarchy and civil war.

This also invites other contenders to take part in proxy wars. While the sole purpose of United States is to sell its arms, it wants to keep others countries busy in fighting wars, rather than focusing on the welfare of their people. This also gives it a chance to keep the countries dependent on the World Bank and the IMF.

After having gone through what has been happening in the United States, after Donald Trump taking oath as new President, I am obliged to say that till recently the United States has been fanning hatred in the world, but now it is facing the same. Demonstration on the inaugural day and subsequent events clearly shows ‘Emergence of anarchy in the United States’. There are growing fears within the United States these demonstrations may turn violent.

Over the years the United States has been breading militants and using them in various countries to promote its agenda of keeping the countries in constant state of war. The worst examples are Syria, Iraq and Afghanistan. The blood thirsty mercenaries from around the world have landed in these countries. It may also be said that these militants have been moved from one country to another only to promote sale of arms.

One often wonders how the rebel groups get money. Even a cursory look at Afghanistan and MENA shows that poppy and petrodollars are used for purchasing arms. Various oil fields have been taken over by rebels, who are selling oil to the developed nations. The center of drug has shifted from golden triangle to Afghanistan.

Spy agencies of the United States have been alleging Russia for rigging election. This on one hand proves the failure of these agencies and on the other hand breakout of anarchy in the country that has been creating turmoil around the world.

Over the years, United States has been ringing alarm of nuclear assets going into the control of militants in various countries. One may ask the same question, will nuclear assets of United States be in safe hands, if the present demonstrations turn violent?

Pakistan stock market remains under pressure

The benchmark index of Pakistan Stock Exchange remained volatile during the week owing to political developments related to Panama case. With changing tone of the Supreme Court bench in favor of Prime Minister, the market reversed its earlier losses and closed at 49,365 levels, up 0.31%WoW. Textiles, Autos and Steels were the major driving sectors owing to announcement of textile package, early models launch/robust sales, and imposition of anti‐dumping duty on CRC imports, respectively. As against this, E&Ps and Banks provided major drag on Index due to foreign selling as Privatization Commission approved divestment of OGDC, and expectations of delay in interest rate liftoff, respectively. Average daily traded volumes fell by 20%WoW to 489 million shares where volume rankings continued to be occupied by second tier scrips such as: TELE, FABL, KEL, SSGC and BOP. Volume leaders during the outgoing week included: MTL, SNGP, HCAR, PSMC and ICI, while laggards included: OGDC, ASTL, HBL, UBL and PSO. Key developments during the week included: Prime Minister restored subsidy on fertilizer which was earlier withdrawn by the Ministry of Food, 2) SECP proposed setting requirement all equity funds and funds of funds would have to maintain at least 5% of net assets in cash and cash equivalents, 3) NTC imposed anti‐dumping duty of 13.17%‐19.04% on imports of cold rolled coils/sheets from China and Ukraine for a period of 5 years, 4) Privatization Commission approved initiation of capital market transaction of OGDC’s with divestment of up to 5% stake, and 5) The cut‐off yield declined slightly at the latest Treasury Bills auction with heavy participation of Rs1.071 trillion, while bids valued Rs538 billion were accepted. The market is expected to remain volatile in near term due to political risk associated with ongoing Panama case hearings. Possible selling spree of mutual funds to meet proposed SECP requirement can create additional pressures. Expectations of delay in interest rate liftoff may continue to keep banking sector under pressure. While analysts expect status quo in upcoming Monetary Policy announcement later this month, it can shed further light on interest rate outlook. However, analysts also believe that Textiles, Autos and Steels to remain in limelight due to aforementioned developments. Telecom/IT sector may also garner investors’ interest as the government plans to announce tax relief package for Telecom/IT sector.

With a sharp rise in December'16 (US$1.08 billion), current account deficit in 1HFY17 has accumulated to US$3.58 billion, higher than the deficit recorded for the last fiscal year. The deterioration in 1HFY17 reflects weak trade dynamics (trade deficit up 15.6%YoY) on declining exports and tepid remittances. Going forward, analysts expect the trend to continue with FY17 current account deficit at 1.85% of GDP on account of anticipated increase in imports as crude oil prices stabilize at higher levels and remittances failing to provide support. Concerns also remain on foreign investments as FDI from China has remained lower this year (down 54%YoY in 1HFY17) with the 10%YoY increase in 1HFY17 reflecting US$462 million flows under EFOODS's acquisition. Within this backdrop, analysts highlight mounting risks on foreign exchange reserve with upcoming external repayments (cumulative US$1.5 billion‐ US$1.75 billion under Eurobond, Paris Club and China SAFE debt retirement) largely funded through debt flows.

Lucky Cement (LUCK) is scheduled to announce its 2QFY17 result on 26^th of this month and expected to post consolidated/unconsolidated earnings of Rs4.27 billion/Rs3.48 billion (EPS: Rs13.21/Rs10.78), up 10%YoY/6%YoY from Rs3.87 billion/Rs3.29 billion (EPS: Rs11.97/Rs10.16) for 2QFY16. The growth in earnings is expected to be led by growth in topline owing to 11.3%YoY growth in dispatches as domestic dispatches are expected to go up 23.3%YoY backed by stronger domestic demand and additional sales of clinker to FCCL. However, increase in average coal price by 68%YoY is expected to shrink gross margin (GM) to 43% limiting gross profit growth to +1%YoY. Inter alia, 17%YoY decline in distribution cost due to fall in export dispatches by 28.5%YoY, and 76%YoY higher other income due to higher cash base is expected to result in further earnings growth. Consolidated earnings are expected to get a further boost from operations of 50MW wind farm and 1.18 million tpa cement plant in Congo.

AKD Securities has revisited its investment case for ASTL owing to recent increase in re‐bar prices by Rs3,000/ton. The increase in re‐bar prices is attributable to the rise in imported scrap prices and Chinese re‐bars prices. In this backdrop, ASTL has rallied 44% during January’16 so far, while further increase in domestic re‐bars prices is anticipated. In this regard, analysts estimate Rs1,000/ton increase in re‐bars prices to potentially raise earnings. However, they highlight that the local re‐bars prices are being raised to pass on cost of scrap where US$10/ton increase in scrap price is expected to dampen earnings by Rs0.88/share while it will require Rs1,300/ton increase in re‐bars price to completely pass on this cost. They also believe that ASTL's price rally has been overdone.

Pakistan Petroleum FY16 profit declines by 55 percent

Pakistan Petroleum Limited (PPL) has posted below expectation profit for financial year 2015-16 (FY16) but has not disappointed the shareholders. The Board of Directors has approved payment of final dividend of Rs3.50/share in addition to an interim dividend of Rs2.25/share. This takes the full year dividend to Rs5.75/share.

PPL’s FY16 earnings declined by 55%YoY to Rs17.24 billion (EPS: Rs8.74/share) for FY16 as compared to Rs38.40 billion (EPS: Rs19.47) for FY15. This decline can be attributed to: 1) topline declined by 24%YoY to Rs80.15 billion for FY16 from Rs104.84 billion due to 44%YoY plunge in average oil price to US$41/bbl in FY16 as against US$73/bbl in FY15,  (2) field expenditures grew to Rs44.95 billion in FY16, up by 6%YoY due to aggressive exploration activity, and (3) Other Income declined to Rs5.42 billion in FY16 YoY from to Rs7.61 billion in FY15, a decline of 29%YoY.

The company did not book further impairment loss associated with MND Exploration & Production Limited in FY16 which was expected to amount up to Rs4.00 billion. Nonetheless, lower than expected earnings have been attributable to higher than anticipated field expenditures and effective tax rate of 35%.

Pakistan stock market closes flat

With bouts of profit‐taking dampening an otherwise strong rally, the benchmark index of Pakistan Stock Exchange (PSX) closed almost flat at 49,211 for the week ended 13^th January 2017. Price increases from steel manufacturers, rally in dividend paying stocks before results season, announcement of an export promotion textile package and reversal in fertilizer subsidies revived investor participation, raising average daily turnover for the week by 19.7%WoW. Key news flows included: 1) ECC approving the summary regarding the Prime Minister's Package of Incentives for Exporters with an estimated outlay of Rs180 billion, 2) data showing that during November’16 large scale manufacturing sector grew 8 percent, 3) car sales during December’16 declining to 16,042/14,024 units, lower by 10.2%YoY/12.4%MoM, 4) GoP withdrew the cash subsidy on fertilizers, which was offered to the industry in the budget for FY17, and 5) HUBC has increased stake to 47.5% from 26% in the joint venture of setting up a 1,320MW power project on imported coal at an estimated cost of over US$2 billion . Leaders at the bourse were: ASTL, EPCL, SNGP, and KAPCO, whereas laggards were: PPL, EFERT, NML, and AICL. Volume leaders for the week were KEL, TRG, EFERT and ANL. As results season approach, stocks undergoing price performance stand to lose if earnings growth fails to match investor expectations. Additionally, any reversal in the GoP's annulment of the fertilizer subsidy may allow for pairing back losses.

During December’16 total industry/car sales were recorded at 16,042/14,024 units, lower by 10.2%/12.4%MoM, while the high base from the Rozgar scheme kept industry sales lower by 11.6%YoY. The full year (CY16) industry/car sales at 203,633/177,363 units tapered 9.2%/2.7%YoY, whereas ex‐Rozgar, car sales jumped 26%YoY.  Impressive offtake of Civic drove HCAR sales higher by 24.1%YoY, while PSMC sales ex‐Rozgar tracked up 19% YoY, whereas INDU marked a fall of 3.9%YoY.  Segment‐wise, growth was seen continuing in 1000CC segment up 26%YoY, 1300CC and above increasing by 4%YoY), while the Rozgar‐led high of (68%YoY growth in CY15) cooled in the 1000CC and below segment.  

The CY16 turned out to be an eventful year for commodities. All the major commodities including Oil (up 77%YoY on production cut agreement), Steel (up 85%YoY on increased protectionism and demand stabilization), Coal (up 73%YoY on supply tightening from China), Sugar (up 44%YoY on sustained import demand), Dairy (up 28% YoY on EU intervention price) and Cotton (up 13%YoY on weather related crop shortfall). The exception in this regard was Urea with prices for the commodity down 1.5%YoY however recovering well to US$232/ton currently. Going forward, prices for most commodities, including Oil, are expected to rise, carrying on the momentum from CY16 as markets re-balance. That said, high global stock levels particularly with China and currency uncertainty following Trump's presidency can throw a spanner in the works.   

Chinese have submitted the highest bid for buying controlling stake in Pakistan’s largest integrated utility, K-Electric. Developments surrounding the sponsor hand-off at the utility continue to drive sentiment, while minor price slippages signal growing impatience. Concrete developments include: 1) passing of resolution by shareholders of Shanghai Electric Power Co. Ltd (SEP) approving acquisition of 66.2% shares in the Company, 2) submission of documents and supporting financial reports of SEP to NEPRA for approval, and 3) news reports regarding the approval process for sale, ongoing negotiations, sum up the long and arduous process for change in sponsors. Highlighting the operational credentials of SEP, analysts reiterate the benefits from this planned change in ownership, using past actions by the entity as a blueprint for possible actions by SEP post acquisition in the Company.