Top performing sectors and scrips of year 2022

Let me and you accept the harsh reality that 2022 was a bad year for Pakistan’s capital market. Market value (market capitalization) of companies listed at Pakistan Stock Exchange (PSX) declined 17% to RKR6.4 trillion. In US$ terms it plummeted 35% to US$28 billion. Still there are some islands of excellence.

Real Estate Investment Trust (REIT), Synthetic & Rayon, and Sugar were the top performing sectors in 2022 as their market cap increased by 12%, 6% and 5% respectively, despite bad market conditions.

Technology sector was up 2% and outperformed the market despite fall in global listed technology stocks.

As against these, Engineering, Automobile Parts, and Miscellaneous sectors remained the worst performing sectors posting decline of 45%, 41% and 34% respectively.

REIT sector that has only one listed company gained in 2022 due to stable dividend yield coupled with changes in regulations on REITs investment for banks. To recall, State Bank of Pakistan (SBP) recently allowed banks to count their investments in shares issued by REIT towards achievement of housing and construction finance targets.

Synthetic & Rayon also posted strong performance led by rally in Ibrahim Fiber Limited (IBFL).

Sugar sector performance was led by JDW Sugar Mills (JDWS) that announced buy back.

Engineering sector (mainly steel related companies) was badly impacted due to economic slowdown and subdued construction activity.

Automobile parts sector also remained amongst worst performing sectors primarily due to import restrictions, high financing rates and lackluster demand.

For its analysis, Pakistan’s leading brokerage house, Topline Securities assumed sectors with minimum market capitalization of US$100 million adjusted for new listings including Adamjee Insurance (AICL), and Telecard Limited (GEMSNL).

Lotte Chemical (LOTCHEM) doubled while Airlink was down substantially in 2022. LOTCHEM was the top performing stock of the market in 2022 where the scrip gained more than 100%. Investors were excited over potential sell off by Lotte Chemical Corporation South Korea (parent company of LOTCHEM) and subsequent public offer for minority shareholders.

LOTCEHM was followed by Faysal Bank (FABL) and Unilever Pakistan Foods (UPFL). The strong stock performance by FABL is on announcement to convert into an Islamic Bank followed by a special dividend.

Similarly, UPFL stock was up 34% as the company posted strong profitability growth of 33%YoY in 9M2022.

Systems Limited (SYS), Pakistan’s largest listed IT firm remained amongst the top performing stocks for the third consecutive year as the company continued to post strong profitability growth in spite of economic challenges.

Air Link Communication (AIRLINK) declined 54% due to low profits led by lower volumetric sales.

Gul Ahmed Textile Mills (GATM) also reported decline by 52% amid slowdown in textile exports.

Searle Company Limited (SEARLE) was down 52% due to lower profits led by falling gross margins driven by significant jump in raw material cost and company’s inability to immediately pass full impact on to consumers.

 

Investors dump equities

Investors have dumped equities at a record pace in the days since major central banks signaled they won’t be deterred in their fight against inflation—a fitting end to the worst year for world stocks since the global financial crisis.

Equity funds were hit by outflows of almost US$42 billion, the highest ever, in a week when the Federal Reserve, the European Central Bank and the Bank of Japan all sounded staunchly hawkish notes in their policy outlook for next year, squashing bets of an imminent return to the era of cheap money.

In the US on Friday, new numbers showing inflation cooling there seemed to mollify some investors, as markets rose slightly to end the week.

US stocks ended Friday’s session with gains as investors digested data showing inflation is continuing to ease and the Federal Reserve’s rate hikes are serving their purpose. 

Both the S&P 500 and the tech-heavy Nasdaq 100 still suffered their third week of losses, the longest losing streak for both indexes since late September, as investors this month grappled with a hawkish Fed and data pointing to a resilient economy that can handle more rate-hike pain. 

Treasuries ended a holiday-shortened session lower. The benchmark 10-year yield climbed the most this week since early April 2022, ending Friday around 3.75%. The dollar suffered a weekly drop. This week’s gains took the yen to its highest level since June as the Bank of Japan’s sudden increase in its yield trading band is expected to encourage Japanese investors to bring money home.

Data on Friday showed the Fed’s closely watched measure of inflation cooling and consumer spending stagnating. Consumers’ year-ahead inflation expectations also dropped this month to the lowest since June 2021, a survey by the University of Michigan showed. Both sets of data calmed sentiment on Friday. 

“I think there is very little depth of liquidity, and a lot of daily and weekly options. But it has seemed like really exaggerated moves relative to any news,” said Peter Tchir, head of macro strategy at Academy Securities. “It seems like we rally hard on ‘Santa’ and weaker inflation data and selloff hard on good data and eco fears.”

While central bank officials this year have repeatedly said that they’ll keep raising rates, markets have often shrugged off these warnings. But economic data has continued to keep investors on the edge. They’ve especially been attuned to information pertaining to jobs, since softening in the labor market is something the Fed is keeping an eye on. 

“Historically, usually the market has been right, but in 2022 it’s been the Fed,” Jim Bianco, founder of Bianco Research, said on Bloomberg Television and Radio. “Are we going to get the pivot in 2023 or are we going to get the pivot in 2024? If the market doesn’t get the pivot, which it is expecting, I think there’s going to be some room for disappointment.”

Investors have cheered a moderation in inflation in recent months. But data underscoring a strong economy has often led to choppy sessions for markets, with some traders reassured that a US recession is still at bay while others fear this means the Fed will stay aggressive.

In commodity markets, everything from oil to gold and copper rose on Friday. Oil posted substantial weekly gain as Russia said it may cut crude production in response to the price cap imposed by the Group of Seven on its exports, highlighting risks to global supplies in the New Year.

United States endures massive winter, blackouts and power outages

Tens of millions of Americans endured bone-chilling temperatures, blizzard conditions, power outages and canceled holiday gatherings Friday from a winter storm that forecasters said was nearly unprecedented in its scope, exposing about 60% of the US population to some sort of winter weather advisory or warning.

More than 200 million people were under an advisory or warning on Friday, the National Weather Service said. The weather service’s map depicts one of the greatest extents of winter weather warnings and advisories ever, forecasters said.

Power outages have left about 1.4 million homes and businesses in the dark, according to the website PowerOutage, which tracks utility reports.

The Tennessee Valley Authority, the nation’s largest public utility, ended its rolling blackouts Friday afternoon but continued to urge homes and businesses to conserve power.

In Georgia, hundreds of people in Atlanta and northern parts of the state were without power and facing the possibility of sub-zero wind chills without heat.

Nearly 5,000 flights within, into or out of the United States were canceled Friday, according to the tracking site FlightAware, causing more mayhem as travelers try to make it home for the holidays.

“We’ve just got to stay positive,” said Wendell Davis, who plays basketball with a team in France and was waiting at O’Hare in Chicago on Friday after a series of flight cancellations.

The huge storm stretched from border to border. In Canada, WestJet canceled all flights Friday at Toronto Pearson International Airport, beginning at 9.00 am as meteorologists in the country warned of a potential once-in-a-decade weather event.

In Mexico, migrants waited near the US border in unusually cold temperatures as they awaited a US Supreme Court decision on whether and when to lift pandemic-era restrictions that prevent many from seeking asylum.

Forecasters said a bomb cyclone — when atmospheric pressure drops very quickly in a strong storm — had developed near the Great Lakes, stirring up blizzard conditions, including heavy winds and snow.

Multiple highways were closed and crashes claimed at least six lives, officials said. At least two people died in a massive pileup involving some 50 vehicles on the Ohio Turnpike.

A Kansas City, Missouri, driver was killed Thursday after skidding into a creek, and three others died Wednesday in separate crashes on icy northern Kansas roads.

Michigan also faced a deluge of crashes, including one involving nine semitrailers.

Brent Whitehead said it took him 7.5 hours __ instead of the usual six __ to drive from his home near Minneapolis to his parents’ home outside Chicago on Thursday in sometimes icy conditions.

“Thank goodness I had my car equipped with snow tires,” he said.

Activists also were rushing to get homeless people out of the cold. Nearly 170 adults and children were keeping warm early Friday in Detroit at a shelter and a warming center that are designed to hold 100 people.

“This is a lot of extra people” but it wasn’t an option to turn anyone away, said Faith Fowler, the executive director of Cass Community Social Services, which runs both facilities.

In Chicago, Andy Robledo planned to spend the day organizing efforts to check on people without housing through his nonprofit, Feeding People Through Plants. Robledo and volunteers build tents modeled on ice-fishing tents, including a plywood subfloor.

“It’s not a house, it’s not an apartment, it’s not a hotel room. But it’s a huge step up from what they had before,” Robledo said.

In Portland, Oregon, nearly 800 people slept at five emergency shelters on Thursday night, as homeless outreach teams fanned out to distributed cold-weather survival gear. Shelters called for volunteers amid high demand and staffing issues. Employees were laid low by flu or respiratory symptoms or kept from work by icy roads, officials said.

DoorDash and Uber Eats suspended delivery service in some states, and bus service was disrupted in places like Seattle.

The power ceased at Jaime Sheehan’s Maryland bakery for about 90 minutes Friday, shutting off the convection oven and stilling the mixer she needed to make butter cream.

“Thankfully, all of the orders that were going out today already finished yesterday,” she said a few moments before the power returned.

At about the same time, Corey Newcomb and his family were entering their sixth hour without power at their home in the small town of Phenix, Virginia.

“We are coping and that’s about it,” Newcomb said in a Facebook message.

South Dakota Governor Kristi Noem said she was deploying the National Guard to haul timber to the Oglala Sioux and Rosebud Sioux tribes and help with snow removal.

“We have families that are way out there that we haven’t heard from in two weeks,” Wayne Boyd, chief of staff to the Rosebud Sioux president, said.

Fearing that some are running out of food, the tribe was hoping to get a helicopter on Saturday to check on the stranded.

The Oglala Sioux Tribe, meanwhile, was using snowmobiles to reach members who live at the end of miles-long dirt roads.

“It’s been one heck of a fight so far,” said tribal President Frank Star Comes Out.

On the Pine Ridge Indian Reservation, Harlie Young was huddled with five children and her 58-year-old father around a wood stove as 12-foot (3.6-meter) snow drifts blocked the house.

“We’re just trying to look on the bright side that they’re still coming and they didn’t forget us,” she said Friday, as the temperature plunged to frigid lows.

The weather service is forecasting the coldest Christmas in more than two decades in Philadelphia, where school officials shifted classes online Friday.

Atop New Hampshire’s Mount Washington, the tallest peak in the Northeast, the wind topped 150 mph (241 kph).

In Boston, rain combined with a high tide, sent waves over the seawall at Long Wharf and flooded some downtown streets. It was so bad in Vermont that Amtrak canceled service for the day, and nonessential state offices were closing early.

“I’m hearing from crews who are seeing grown trees ripped out by the roots,” Mari McClure, president of Green Mountain Power, the state’s largest utility, said at a news conference.

Calling it a “kitchen sink storm,” New York Governor Kathy Hochul declared a state of emergency. In parts of New York City, tidal flooding inundated roads, homes and businesses Friday morning, with police trudging through knee-deep water to pull stranded motorists to safety in Queens.

In Iowa, sports broadcaster Mark Woodley became a Twitter sensation after he was called on to do live broadcasts outdoors in the wind and snow because sporting events were called off. By midday Friday, a compilation of his broadcasts had been viewed nearly 5 million times on Twitter.

“I’ve got good news and I’ve got bad news,” he told an anchor. “The good news is that I can still feel my face right now. The bad news is, I kind of wish I couldn’t.”

 

 

 

 

 

 

 

Pakistan Stock Exchange benchmark index declines 4%WoW

The political turmoil in the country, along with the continuation of the currency crisis, has led to weakness in the market during the week ended on December 23, 2022. The KSE-100 index settled at 39,669 points, down 1,632 points or 4%WoW. 

The index slipped below 40,000 level since late July 2022. The weakness in the index was accompanied by a meager improvement in participation over the past week, with average daily trading volume at 180.2 million shares during the week, as compared to 161.9 million shares in the earlier week.

Other major news flow during the week included: 1) July-November current account (CAD) shrank 57%YoY, 2) GoP likely to slap flood levy on non-essential imported items, 3) definitive agreement regarding Reko Diq project finalized, 4) Pakistan’s REER index declined to 98.8 in November, 5) gas sector 10-member body formed on circular debt settlement, 6) SBP lowers FY23 growth forecast, 7) international donors to extend over US$16 billion for rehabilitation of flood victims, 8) S&P lowered Pakistan’s sovereign rating, and 9) Super tax to become applicable in TY23 and onwards. Furthermore, the foreign exchange reserves held with the SBP fell to US$6.1 billion.

On the currency front, the PKR remained largely flat against the US$.

Top performing sectors were: Textile Weaving, Tobacco, and Insurance, while the least favorite sectors were: Leasing Companies, Refineries, and Cable & Electrical Goods.

Stock-wise, top performers included: LOTCHEM, AICL, PSEL, PPL, and PAKT, while laggards were: PGLC, PAEL, TRG, ANL, and PIOC.

Flow wise, Banks/DFIs were the major buyers with net buy of US$7.9 million, followed by Companies with net buy of US$5.0 million. As against this, Brokers and Individuals were major sellers during the week, with a net sell of US$3.8 million and US$3.8 million, respectively. Foreign Investors were sellers of US$3.3 million during the period.

With the political uncertainty and currency crisis still ongoing and no definitive action from the IMF on the horizon, the market is expected to witness pressure in the near future.

Sentiments further worsened by the advent of security tensions in the Northern part of the country. In this backdrop, the need of the hour is to arrest the country’s dwindling reserves, which would be dependent on flows from multi-lateral and bi-lateral sources.

Any news regarding foreign inflows would be well received by the market.

Furthermore, with inflation readings persisting at elevated levels in the foreseeable future, further tightening by the SBP is still on the cards, fear of which would likely to keep sentiment in the equity markets muted. Consequently, analysts advise clients to stay cautious while building new positions in the market.

Pakistan Economy: Situation far from satisfactory

As per The State of Economy Report 2021-22 released by State Bank of Pakistan, the country’s economic growth is expected to moderate considerably in FY23. Having delivered a headline growth approaching 6% in FY22, the country is expected to even miss the revised growth target of 3% to 4% this time round.

In addition, the government has targeted to reduce the fiscal deficit to 4.9% of GDP in FY23 from 7.9% in FY22, an outcome that would be achieved through both revenue and expenditure measures. Widening of tax base through elimination of exemptions, increase in tax rates and reinstatement of fuel taxes are expected to boost tax receipts. The non-tax revenues is also expected to improve with the re-imposition of PDL.

It must be kept in mind there can be slippages on the expenditure with respect to rehabilitation efforts. The IMF is insisting on higher collection in order to keep the fiscal and primary deficits within permissible levels. Analysts expect fiscal deficit to hover around 6.5% of GDP, despite higher tax collection.

This deviation could be due to: 1) higher debt servicing and 2) potential slippages during 2HFY23 owing to election and flood relief related spending.

Current account deficit situation is expected to improve beyond the original estimates of 3% of GDP in FY23 due to various demand suppression measures implemented by the government.

Likewise, commodity prices have also softened which will reduce the pressure on CAD even further. However, the loss to agriculture produce, induced by the recent floods, is likely to step up import of agriculture commodities, especially cotton.

Everyone must keep in mind that Pakistan’s economy is in an extremely fragile state at present with foreign exchange reserves slipping close to US$6 billion, barely enough to provide import cover of 1.16 months.

The external debt is reported at US$127 billion, equivalent to 40% of GDP. Pakistan faces significant challenges on the debt rollover. To this end, during 5MFY23, the gross inflow (including US$1.2 billion from IMF) has been only US$4.9 billion, while the amortization payments have been US$4.1 billion. The market has been jittery and analysts expect the volatility to continue throughout CY23.

As per the central bank, the recent flooding will impinge the country’s real economic activity through various channels, where the losses in agriculture sector arising from the damages to crops and livestock are likely to reverberate through the rest of the economy.

The current estimates for headline growth are 1.7% while analysts expect only a limited uptick in growth outlook during FY24, despite a low base effect, as the central bank would want to keep the indigenous demand in check to manage external account.

Fiscal side is not much better either. The GoP has targeted to reduce the fiscal deficit to 4.9% of GDP in FY23 from 7.9% in FY22, an outcome that would be achieved through a combination of both revenue and expenditure measures. FY23 has got off to a good start in term of collection with FBR exceeding its collection targets for 5MFY23.

There is currently an impasse over the IMF talks over the disbursement of the next US$1.0 billion tranche, with the fund and local authorities unable to agree on the quantitative targets. Analysts expect fiscal deficit to clock in at 6.5% of GDP, despite higher tax collection.

The GoP and the central bank are anticipated to keep the import bill under the wraps beyond FY23 in order to maneuver space on external front. This may result in interest rates remaining elevated and strict control of opening of L/Cs. The fallout, which may inevitably come as a result of adopting this strategy, will be visible in lower headline growth and tax collection. Analysts anticipate GDP growth to remain subdued beyond FY23.

 

US budget will support proxy wars in 2023

The US Senate has passed legislation for the Pentagon budget next year, whopping US$858 billion. The unprecedented package is US$45 billion more than President Joe Biden had requested and is set to have consequences for global peace and security. The bill passed so easily in both chambers tells about the priorities of Washington. 

The bill is the largest budget in the history of the world. It is about three to four times larger than the budget of China whose population last year was reported at 1.412 billion, in comparison to the 331.9 million of the United States.

It is also a conservative budget as it does not include other aspects of the US military such as America’s nuclear weapons program, which is in the region of trillions of dollars. Nor does it include the Central Intelligence Agency. Last year, Congress gave the CIA US$25 billion more than it asked for.

Experts say this huge US military budget supports a network of global occupation. An occupation that has a military presence that includes Europe, parts of East Asia, in particular Japan and South Korea, nations across West Asia, and parts of Africa.

The amount of money being spent on the military has been met with anger among Americans, especially during this period of economic hardship on the backdrop of a global pandemic and war in Ukraine.

Since 2001, conservative estimates suggest the US has spent at least US$20 trillion on war and military adventurism abroad.

This is while the latest US$858 billion bill has no purpose to protect the people of the United States. Nobody is threatening the US mainland which raises the question of why such a large amount is being spent by Washington on its military. Nearly half of the US discretionary budget is spent on the military.

The diversion of these resources could be used for feeding, clothing, educating, building, and treating Americans back home who are desperately in need of such services.

There is a lack of healthcare or enough housing, adequate food and clean water, or a clean environment inside the United States. These issues are rarely mentioned by the US media.

There has been a very extensive propaganda campaign inside the US in support of the US proxy war in Ukraine, which seems to have won. This campaign is being launched by bipartisan parties in Congress.

This is a war that could have easily been avoided and prevented the suffering of the Ukrainian people as well as citizens across Europe.

The huge amount of money in the military is being used to support the declining US worldwide empire. Washington has to resort to keeping this sinking empire in power and in place through militarism expenditure.

The US is slipping in many ways, as far as being the dominant world power when it comes to economics and finance, and diplomacy. But it does claim to be the world’s leading military power, which other countries can depend on.

History has proven that to be false and such a claim by Washington of being the world’s number one military power is not something to be proud of considering its multiple military defeats.

The budget also allocates funds to send more military aid to Ukraine which raises the question if Washington is seeking to prolong the war.

Experts say the aim is to seek regime change in Russia, in particular, after Moscow sent its forces to Syria to help Damascus fight terrorism.

The idea of dismantling the Russian Federation has been openly talked about at the US state department. It is actively holding public forums in various places with groups that the US claims are repressed nationalities in Russia under the context of liberation movements.

Critics say Washington is doing or trying to do what was done to the Soviet Union in 1991.

But critics also say some policymakers at the US State Department are under the illusion or delusional enough to believe that Washington can re-enact the events of 1991 (when the Soviet Union was dissolved) and have the Russian Federation collapse by expanding NATO.

Washington is playing with fire in Ukraine as Russia says if it sends Patriot missile batteries to Kyiv that means American military personnel would be operating the missile systems.

This could pit Russian forces in direct combat with American forces and could potentially expand the war. Should the US military sustain casualties by Russian retaliatory attacks, this would lead to nowhere but a third world war.

It highlights the instability of America’s delusional policy-making. The US invaded Afghanistan but never succeeded in occupying the country in 20 years with no plans on how to withdraw until it fled in a very chaotic nature in similar scenes to Afghanistan.

The massive military policy bill also includes the authorization of up to US$10 billion in military assistance and fast-tracked weapons procurement for Taiwan.

One think tank says it will allow a regional contingency stockpile that will allow the Pentagon to place weapons in Taiwan (which is part of China) for use if a military conflict with Beijing arises.

The US Indo-Pacific Command’s outgoing Admiral Phil Davidson, before leaving office, said the island chain countries have to be prepared for war. In other words, places like Japan, Taiwan, the Philippines, and others have to prepare for war triggered by the US.

Analysts have interpreted this until today, as meaning that countries surrounding China have to be built up militarily so that if a war occurs with China these countries and regions get hit and suffer casualties as well as destruction.

But Washington needs the same countries and regions to have so much weaponry so they can continue fighting or serve as the basis for the US to continue a war against China until victory.

It highlights how little concern the US has towards those countries and how cold-blooded the US approach to war is.

It also means the United States is disregarding the Shanghai Communique which recognizes on both sides of the strait, everyone recognizes only one China. Now Washington is not treating Taiwan as part of China which is very dangerous.

There has been an ongoing drive to militarize some nations surrounding China, in a similar fashion to Russia.

In Africa, the US is fighting in five or six places in addition to the Ukraine war, the Yemen war, and other civil wars that Washington is waging through various proxies.

The timing of the budget comes at a time when the US national debt stands at around US$31 trillion, which puts into question the thought process of those making decisions in America.

US senators backed the bill overwhelmingly which means there is always consensus on the war in a congress that the US arms companies have the lawmakers their pockets. The military-industrial complex, along with the banks and the oil companies are the only beneficiaries of war.

Unlike healthcare, abortion, gun control, and so many other issues that take so long to pass Congress amid deep divisions between the Republicans and the Democrats, when it comes to militarism, there is no bickering at all.

 

Governor State Bank of Pakistan urges banks to support agriculture sector

Governor State Bank of Pakistan (SBP), Jameel Ahmad, while chairing the annual meeting of Agricultural Credit Advisory Committee (ACAC) in Hyderabad referred to the devastation caused by recent floods and observed that climate change is the biggest long-term threat to the country due to its unforeseen impacts.

He added that while the government, businesses and societies are recognizing such threats, we need to take timely actions and allocate required resources for research and development of relevant products and services and capacity building of stakeholders to address these preemptively.

Governor, appreciated efforts of banks in achieving unprecedented agriculture credit disbursement of Rs1.419 trillion in FY22. He noted that for FY23, the target has been fixed at Rs1.819 trillion, in line with

Government’s priority and added that during first five months of FY23, Rs664 billion have already been disbursed.

He added that Prime Minister of Pakistan has announced the Kissan Package, comprising of restructuring and rescheduling of agriculture loans, mark-up waiver for outstanding small loans in flood affected areas, interest-free loans for subsistence and landless farmers and subsidized loans and risk sharing scheme for farm mechanization, besides other support measures.

Governor SBP elaborated that the package will facilitate recovery of farmers from the impact of recent floods and urged banks to implement the package in letter and spirit. He also assured SBP’s full support to the banks wherever needed.

The Governor also underlined that banks have a huge opportunity to exploit the untapped potential of Islamic agriculture financing with respect to SBP’s recent commitment towards transformation of conventional banking to Islamic banking in the next five years. He noted that the share of Islamic financing in agriculture financing is still quite low and urged the industry to work on developing demand driven Islamic financing products, specifically tailored to the requirements of the farming community.

Governor’s inaugural address was followed by a presentation on the performance of banks in agricultural financing. The ACAC deliberated on the new directions in agricultural financing particularly regarding climate smart agriculture practices and the role that financial institutions can play.

Moreover, the champion banks, nominated by the ACAC to spearhead the efforts in underserved areas, presented the progress in their respective assigned underserved provinces or regions.

The ACAC meeting was attended by senior officials of federal and provincial governments, Presidents/CEOs of banks, members of provincial chambers of agriculture, progressive farmers, representatives of regional farming communities and SBP senior officials.