PSX benchmark index closes flat for 3Q2022

Pakistan Stock Exchange benchmark index for 3Q2022 declined 1% after falling 8% in 2Q2022. The index has now recovered 3% from its 2022 low of 39,831 touched on July 21, 2022.

This was on the back of revival of IMF program and expectations of increased foreign flows. To recall, the IMF Executive Board approved release of US$1.1 billion tranche under the Extended Fund Facility (EFF).

In US dollar terms, the index was down 11% in 3Q2022 due to currency depreciation. Lately, intense monsoon season and flash flooding severely impacted Agricultural crops and has caused damage to infrastructure which has raised concerns over Agricultural outlook and increase in imports.    

According to Bloomberg, Pakistan was neither amongst the top nor the worst performers during the quarter. Sri-Lankan market was up 33%, Argentina up 33%, Laos up 30% were the best performing markets during the quarter under review. As against this, Poland was down 27%, Ghana down 25%, and Hong Kong down 23% were the worst performing markets.

During 3Q2022, average daily traded volumes in the Cash and Ready market declined by 47%YoY, while it dropped by 12%QoQ to 218 million shares. The average daily traded value plunged 50%YoY and 4%QoQ to Rs7.0 billion.

The average daily traded volume in the Futures market also declined by 39%YoY and 14% QoQ to 91 million shares. The average traded value declined by 47%YoY, while up 6%QoQ to Rs3.6 billion.

Insurance sector was top seller during the quarter with net selling of US$40 million followed by Mutual Funds (US$25 million and Foreign Corporates (US$14 million). On other hand, Individuals (US$25 million), Companies (US$13 million), and Brokers (US$8 million).

Key sectors that underperformed market during the quarter included Cable & Electrical, Automobile Assemblers, and Tobacco. However, sectors that outperformed were Technology, Transport, and Cements.

Foreign inflows and debt relief

Pakistan foreign exchange reserves have remained under severe pressure recently and remain under 1.5 months of import cover. With Pakistan external financing requirements (debt repayment & current account deficit) of over US$32 billion, there are concerns whether Pakistan will be able to meet its financing needs or not.

However, with the recent floods and the damage it has caused to human lives and infrastructure, there are expectations for debt relief and flood assistance. UN Secretary-General Antonio Guterres recently suggested global financial institution to give Pakistan debt swaps where the relief on debt repayment is diverted towards addressing climate changes.

Asian Development Bank (ADB) also has recently stated that it is envisioning providing Pakistan financing of US$2 billion to help country fight from devastation of floods.

Along with this, demand for debt relief from Bi-lateral/Multi-lateral sources including debt relief from Paris Club is been made which could provide some respite to the depleting reserves of the country.

Pakistan has total outstanding debt of US$9.2 billion from Paris Club and a scheduled debt servicing of US$1.2 billion in FY23. Any debt relief or rescheduling of Paris Club debt and expected foreign flows from ADB, friendly countries and other multi-lateral agencies will remain the key in determining outlook of the market.

IMF stance on floods and relaxation

Given the severity of floods, Pakistan faces a big challenge in achieving stringent external account and fiscal account targets set with IMF for FY23. It will be interesting to see if IMF provides any relaxations in its next review scheduled in November. A few newspaper quoted that IMF has agreed to give relaxation on increase in taxes on petroleum products and Fuel Charges Adjustment on power tariffs till 3-months.         

Commodity Prices

 Outlook on Pakistan economy will also be dependent upon commodity price trend going forward. International Arab Light oil prices have been down by 15% during the quarter, the fears of global recession has led to expectations of further drop. Oil imports continue to constitute over 30% of Pakistan’s oil import bill as sustained reduction in crude oil and product prices could lower pressures on import bill and could also curb rising inflation.   

New Finance Minister 

Ishaq Dar has recently been appointed as Finance Minister replacing Miftah Ismail. Ishaq Dar recently stated that his focus would be on addressing issue of speculation in currency market as he termed Pak Rupee as undervalued. He also vowed to tame down inflation and interest rates.

Since Sep 23, 2022, Rupee has gained against US$ in anticipation of the steps he will take to bring down the exchange parity. Petrol/Diesel prices were also cut, though marginally for the next 15-days, beginning October 01, 2022.

 

Pakistan economy after the floods

When Pakistan received tranche of US$1.2 billion from International Monetary Fund (IMF), it was anticipated that PKR would find solid ground against the US$. However, against expectations, the currency continued depreciation.  While the country’s borrowing needs for the year are fully met, the outlook beyond FY23 remains uncertain.

As per the latest IMF document, Pakistan’s gross borrowing needs over the next 5 years are expected to top US$180 billion, meeting them or even rolling them over will be an uphill task. In the short term, the country’s borrowing needs may increase further as floods have washed away standing crops in Sindh and lower Punjab.

The country will need to import various food items to fulfill local demand and the import bill will be driven by food items. With exports likely to remain lackluster, the onus falls upon inward remittances and FDI to balance the gap between inflows and outflows.

However, the remittance inflow, which has picked up of late, has remained largely disappointing. The same can be said for RDA inflows which have also started to dry up over the past few months.

The need of the hour is to increase monthly remittances and RDA inflows while stamping out currency smuggling from the country.

Pakistan’s monthly current account deficit (CAD) for August 2022 nearly halved to US$0.7 billion, lowest since April 2022, despite hefty oil and food imports amid recent flood damages. Import curtailment gained support from administrative measures, reducing trade deficit to US$2.9 billion (a decline 4%MoM). Remittances also increased during the month to US$2.7 billion, cushioning trade deficit adequately. The month also saw a Balance of Payment surplus owing to US$1.2 billion received from IMF. Going forward, bilateral and multilateral loans and international aid for floods rehabilitation will likely provide external support.

Trade deficit has declined by a mere 4%MoM to US$2.9 billion, largely owing to administrative measures on restricting non-essential items and policy rate impact. However, food imports have increased to all-time high of US$1.0 billion up 34%MoM.

Petroleum imports have been recovered at US$1.9 billion, up 30%MoM) in August 2022. The month also saw trend reversal in PBS-SBP import difference, which has mostly remained short-lived historically.

Resumption of energy supplies amid normalized working days and lack of Eid holidays, led to the rebound in textile exports, up 18%MoM. This has led to overall exports growth of 23%MoM; helping trade deficit to remain under US$3.0 billion level. 

Remittances recovered during August 2022, increasing to US$2.7 billion, up 8% MoM and cushioning the trade gap. Higher inflows from United States and Saudi Arabia have elevated overall base. Looking ahead, analysts expect decent growth numbers in FY23 backed by increase in Pakistani worker registration in GCC countries.

As per Board of Emigration and Overseas Employment (BEOE), around 531,000 Pakistanis have expatriated during 8MFY22 as against 288,000 and 225,000 during FY21 and FY20, respectively. Most of the expatriations have occurred towards Middle East countries which continue to enjoy better macros in a high oil price environment.

The overall Balance of Payment (BoP) turned to positive and stood at US$440 million. This is largely owing to US$1.2 billion tranche received from IMF under EFF facility. But to support overall BoP and foreign exchange reserves, Pakistan needs further support from international organizations and friendly countries, the deliberations with these lenders have already started. Analysts believe, the stronger US$ has continued to impact PKR, besides the low foreign exchange liquidity in the country; pushed PKR to near to its all-time low of PKR240/USD.

 Pakistan has been severely impacted by the recent floods as it has led to massive damage to country’s physical infrastructure including damage to homes, roads, bridges etc.

As per National Disaster Management Authority (NDMA) a cumulative loss of 1.76 million houses (partially and fully damaged), 390 bridges and roads (distance of 12,718km) has already taken place till September 14, 2022.

Therefore, there is a need to explore cement sector outlook, especially after floods. A brokerage house made an attempt to estimate the impact. The manufacturers cumulatively represent 76% of the total industry size in terms of plant capacity.

The survey results show that 75% of the participants expect domestic cement dispatches to fall in the range from 0% to 10%YoY in FY23 as against 2MFY22 fall of 35%. Around 17% of the participants anticipate growth of 10% or above and 8% expect it to increase from 0% to 10%. 

This likely fall in local sales is better than initial expectation of a larger fall due to floods and economic slowdown.

Cement manufacturers anticipate cement demand to pickup next year as 83% of the participants expect demand to remain in the range of 0% to more than 10% in FY24 whereas 17% of the manufacturers believe it will increase from 10% to 20% as construction activity will pick up once relief measures complete and the water starts receding.

The survey results also show that rebuilding or reconstruction activity could at least take 3 to 6 months. 42% of the participants expect it to start after 1 to 3 months whereas 42% of the participants believe it will start after 3 to 6 months. On other hand, 17% of the participants anticipate that it will start after 6-9 months.

United States sacrificing Iranian nuclear deal for Israel election

Talks in Vienna over reviving a 2015 Iran nuclear deal appear to have entered a stage of inertia amid Israeli and American preparations for upcoming elections. 

Nearly a month has passed since Iran submitted its response to a US response to the final text submitted by the European Union coordinator for the Vienna talks to resuscitate the tattered 2015 nuclear deal, commonly known as the Joint Comprehensive Plan of Action (JCPOA).

Spokesman for the Iranian Ministry of Foreign Affairs Nasser Kanaani announced that Iran had submitted its views on America’s response to the draft of a possible agreement on the removal of sanctions.

“After receiving the US response, the Islamic Republic of Iran’s team of experts precisely reviewed it, and Iran’s responses were drafted and submitted to the coordinator on September 08 following evaluations at different levels,” the official said.

“The submitted text has a constructive approach with the goal of finalizing the negotiations,” the spokesman added.

The United States was quick to respond. It described the Iranian response as unconstructive. Since then, US officials have repeated this, accusing Iran of derailing the conclusion of the talks, a charge Iran denies. 

After a bout of Iran-bashing remarks, the US plunged into silence as to when it would respond to the Iranian response. In the meantime, press reports alleged that the conclusion of the talks could be delayed until after the November congressional elections in the US and Israel. 

It seems that the Vienna talks have gotten stuck in electoral politics in Tel Aviv and Washington. Legislative elections are due on November 01, 2022, in Israel. A week later, US mid-term elections will kick off. Israel has entered what can be called election fever. The Vienna talks seem to have fallen victim to that fever.

On Thursday, Mossad Director David Barnea concluded a security-diplomatic visit to Washington; the main objective was to dissuade the Biden administration from signing the JCPOA. 

“Mossad Director David Barnea, met various senior US officials, including Heads of CIA and FBI, National Security Advisor, Secretary Defense, Chairman Joint Chiefs of Staff, and additional senior administration officials at the State Department,” a statement by the Israeli Prime Minister’s office said. 

The statement added, “During the meetings, the Director of the Mossad presented sensitive intelligence materials, and emphasized that Israel will not be able to stand idly by while Iran continues to deceive the world.”

It was issued after a meeting between Barnea and Israeli Prime Minister Yair Lapid, who is facing fierce criticism from his political rivals, namely his predecessor Benjamin Netanyahu, over Israel’s policy toward the Vienna talks. 

Pundits believe that Lapid’s crusade against the JCPOA is primarily motivated by his desire to politically disarm his rivals in the approaching Knesset elections.

In a sense, pundits say, Lapid wants to derail the talks to convince Israeli voters that his campaign against Iran is no less fierce than Netanyahu's.

 

Putin proclaims Ukrainian annexation

Vladimir Putin proclaimed Russia's annexation of a swathe of Ukraine in a pomp-filled Kremlin ceremony, promising Moscow would triumph in its special military operation against Kyiv even as some of his troops faced potential defeat.

According to Refuters, The Russian President's proclamation of Russian rule over 15% of Ukraine - the biggest annexation in Europe since World War Two - has been firmly rejected by Western countries and even many of Russia's close allies.

It comes as Russian forces in one of the four regions being annexed face being encircled by Ukrainian troops after Putin ordered a massive mobilization drive to get hundreds of thousands of Russian men to the front.

In one of the toughest anti-American speeches he has delivered in more than two decades in power, Putin signalled he was ready to continue a battle for a greater historical Russia using whatever tools he had at his disposal and slammed the West as neo-colonial and Satanist.

"Truth is on our side. Russia is with us!" Putin told his country's political elite, who had gathered in one of the Kremlin's grandest halls to watch him signing documents annexing four Ukrainian regions.

He said the United States had set a precedent when it had dropped two atomic bombs on Japan in 1945, but stopped short of issuing new nuclear warnings against Ukraine himself, something he has done more than once in recent weeks.

The ceremony culminated in the 69-year-old leader chanting "Russia Russia!" as he clasped the hands of the four Russian-backed officials he wants to run the annexed regions, which Ukraine is fighting to win back.

Putin said Russia and the four regions would defeat Ukraine together.

"People living in Luhansk, Donetsk, Kherson region and Zaporizhzhia region are becoming our compatriots forever," said Putin, referring to the four Ukrainian regions which he said Russia was annexing.

"We will defend our land with all our strength and all our means," he said, calling on "the Kyiv regime to immediately cease hostilities and return to the negotiation table".

Ukrainian President Volodymr Zelenskiy, speaking in Kyiv after Putin, said he was ready for peace talks if and when Russia got a new president and announced that Ukraine was formally applying for fast-track membership of the NATO military alliance, something Moscow fiercely opposes.

US President Joe Biden condemned what he called Russia's fraudulent attempt to annex sovereign Ukrainian territory, which he said was a flagrant violation of international law and said new US sanctions would hurt those who provided political or economic support to the annexation drive.

US planning new sanctions on Iranian oil sales

The United States is planning to impose new sanctions on Iranian oil sales, according to a tweet by Bloomberg TV’s Annmarie Hordern.

“The sanctions will focus on entities facilitating the oil trade, and will be part of a broader plan to set up sanctions on the regime in the coming weeks,” Hordern said on Thursday afternoon.

For months now, a new nuclear deal with Iran has kept the market on edge and has been routinely touted as “imminent.” However, a deal has yet to be struck. In just the last couple of weeks, the hope of reaching a deal seemed less certain.

It was often expressed by market pundits that reaching a new nuclear deal with Iran could send oil prices plummeting, with Iran finding it easier to export more oil barrels without the current sanctions.

A new round of sanctions from the United States on Iranian oil exports— termed secondary sanctions on those helping to facilitate Iranian oil trade—would likely have the opposite effect on oil prices.

While the United States prepares to announce additional sanctions on Iranian oil sales—the announcement alone which would certainly send prices upwards to some degree—it is sending the clear message to the US oil and gas industry that gasoline prices are still too high.

On Wednesday evening, US Energy Secretary Jennifer Granholm said that motor gasoline prices should be 30 cents lower than the currently prevailing.

“Prices at the pump should be falling, not rising. Companies need to fix this,” Granholm said in a Tweet.

Russia to annex four more areas of Ukraine

Russian Vladimir Putin will hold a signing ceremony on Friday formally annexing four more areas of Ukraine after a referendum. Russian-backed officials had earlier claimed the five-day exercise secured almost total popular support.

Voting was held in Luhansk and Donetsk in the east and in Zaporizhzhia and Kherson in the south. The Russian president will make a major speech at the Kremlin.

A stage has already been set up in Moscow's Red Square, with billboards proclaiming the four regions as part of Russia. There were echoes of Russia's annexation of Crimea in 2014, which also followed a discredited referendum and was heralded by a presidential victory speech from a stage.

The Western media says no independent monitoring of the process took place and there were accounts of election officials going from door to door escorted by armed soldiers.

The United States said it will impose sanctions on Russia because of the referendums and EU member states are considering an eighth round of measures.

German Foreign Minister Annalena Baerbock said on Thursday that people in occupied regions of Ukraine had been taken from their homes and workplaces by threat and sometimes at gunpoint. "This is the opposite of free and fair elections. And this is the opposite of peace, it is a dictated peace," she said.

The exercise began across 15% of Ukraine last Friday with only a few days' notice. Russian state media argued that the use of armed guards was for security purposes but it was clear that it had the added effect of intimidating residents.

"You have to answer verbally and the soldier marks the answer on the sheet and keeps it," one woman in Enerhodar told the BBC.

Russia does not fully control any of the four regions it has decided to annex. Although most of Luhansk remains in Russian hands, Moscow only controls 60% of Donetsk.

Seven months after Russian forces invaded Ukraine from the north, east and south, war is still raging on the front lines in all four areas. The capital of the southern region of Zaporizhzhia is firmly under the control of Ukraine's government, and a counter-offensive is underway in Kherson.

What US Military Base schools teach?

United States troops serving overseas find that government schools are indoctrinating their children and teaching them to keep secrets from their parents.

According to a report from the Claremont Institute, classes from the Department of Defense Education Activity (DoDEA) teach children radical activism, gender ideology, and hiding gender questions from families.

The lesson plans aren’t about teachers helping children learn the basics; instead, they’re about teachers helping children hide facts from their parents.

“Maybe that student is not ‘out’ to other students in their gender identity,” seventh-grade humanities teacher Genevieve Chavez said in a video provided to Claremont by a whistleblower. “They may be out at school; but they may not be out at home.”

The video was part of a 2021 summit talk titled “Ally 101—Creating an Inclusive Classroom for LGBTQ+ Students.”

In the same talk, Chavez urged teachers to speak about new gender identities with young children.

 “You can talk about LGBTQ+ things in elementary school,” she says. “It’s actually the ideal time. Kids as young as 4 years old are already starting to develop a stable understanding of their gender identity. Elementary school is the perfect time because you can really show students the diversity of gender expression and gender activity.

Claremont notes in its report that many parents disagree with exposing children to gender confusion at an early age.

“Parents have long taken for granted that cultivating a stable sexual identity is a key to individual development. Our military schools think upsetting a stable identity is the key to education,” the report states.

The 2021 summit urged teachers to filter every aspect of school life through radical gender ideology, the report states.

Prom kings and prom queens should be homecoming court or royalty or partners of distinction, teachers should say their own pronouns to normalize it, and teachers can keep the preferred pronouns of students secret from parents, according to Lindsey Bagnaschi, who was teaching high school drama at Stuttgart High School in Germany, which serves local army bases.

It’s also a mistake to call a roomful of students ‘guys’ instead of ‘seventh-graders’,Chavez says.

This year, students rejected the idea of scrapping the old titles, the Claremont report states. But there’s always next year.

The DoDEA’s program also encourages students to activism, according to the Claremont report. The DoDEA’s Strategic Initiatives seek to provide equitable learning experiences for all students.”

To do so, the government suggests implementing “programs and supports to address achievement gaps between racial, ethnic, ability, and other identified groups” and provide “learning environments where students feel safe, secure, and supported by the entire learning community.”

The DoDEA also promises to “stand up and grow Diversity, Equity, and Inclusion (DEI) structures to lead and implement DEI across the organization so that all students, employees, and families feel welcomed, respected, engaged, and empowered.”

The Claremont Institute notes that none of the DoDEA’s focus areas emphasize math, engineering, or any other form of academic excellence, and never define terms like “Key Performance Indicators.”

According to the report, encouraging students to restructure schools to hide the gender binary will teach them to restructure society as adults.

 “If students are used to restructuring their school environment, they will become activists for restructuring the general culture once they leave school,” the report states. “Future citizens, sons and daughters of military personnel, will become much more like their teachers than like their parents.”

A DoDEA presentation on equity and access tells teachers to instruct students in having conversations about critical race theory, the Claremont report states.

Such a conversation is one that “explores the relationship between identity and power, that traces the structures that privilege some at the expense of others, that helps students think through the actions they can take to create a more just, more equitable, world,” according to the presentation.

Tracy Shelton, a literacy coach at Feltwell Elementary, which teaches the children of Americans serving at Air Force bases in Great Britain, recommended that children study books to learn how to be antiracist, the report states.

Racism and antiracism allow no neutral party, Shelton says.

“Racists, Shelton said, following the work of Ibram Kendi, are those who do not fight for racial equity, while antiracists put the fight for racial justice at the center of their lives,” the report states.

Even white people being silent are damaging, according to presentations quoted by the report.

“I was reading ‘Me and White Supremacy’,” says one teacher, and what it teaches “about white silence, and I realized the damage I was doing by my white silence,” the report states.

If teachers can’t get radical books onto reading lists, they can get them to children through independent reading time, book clubs, and literature circles, says Merilee Debus.

Debus is a professional practice improvement specialist at the DoDEA, according to her LinkedIn page.

“We still have a lot of room for getting the right book in their hands when they need it.”

Another teacher, Betty Roberts of Robinson Barracks Elementary School, which serves five military bases in Germany, recommends reading books without critical race theory using critical race theory interpretations, the report states.

She urged students to “take a look at their textbooks and [to] identify … the biases and how underrepresented groups are represented in these textbooks.”

The Claremont Institute ended its report with a call for action from public officials and Congress. But if they don’t act, military parents have one last nuclear option, the report concludes.

“It seems that members of the military who object to such education are no longer welcomed in the military. Perhaps they should just walk out of the military schools with their children or walk away from the military altogether,” the report states.