Pakistan Stock Exchange gains 531 points

The week ending January 26, 2024 started on a positive note, riding the wave of optimism generated by the IMF's favorable review report. The benchmark index closed the week with gains of 531 points at 63,812.

Following this upbeat start, the E&P sector took center stage over developments on clearance of circular debt amounting to PKR1.2 trillion.

As the week drew to a close, conflicting narratives emerged, creating uncertainty around the viability of the circular debt plan. News reports, citing insiders, presented divergent stories—one suggesting the imminent presentation of the plan to the IMF and another reporting objections raised by the Finance Ministry. This uncertainty contributed to corrections observed in the last two trading days, with the likelihood of rate cuts diminishing.

Although discussions around rate cuts gained traction with reduction in cut-off yields in the last T-bills auction, the specter of persistent inflation, projected at 28% for Jan’23, tempered expectations of any rate cut.

The foreign exchange reserves held by State Bank of Pakistan witnessed a weekly increase of US$243 million. The inflow of US$700 million from the IMF was constrained by debt repayments.

Market participation remained cautious due to uncertainties surrounding the circular debt plan and the impending Monetary Policy Committee stance, with average daily traded volume exhibiting a decline of 16%WoW at 392 million shares from 467 million shares in the earlier week.

Other major news flows during the week included: 1) Pakistan and Kuwait to set up US$1 billion fund and 2) Cabinet body set to okay brown-field refinery policy.

Textile Composite, E&P, and Leather & Tanneries companies were amongst the top performers, while Automobile parts & Accessories, Transport, and Property were amongst the worst performers.

Major net selling was recorded by Foreigners with a net sell of US$22.7 million. Insurance absorbed most of the selling with a net buy of US$9.6 million.

Top performers of the week were: OGDC, ATLH, APL, LCI, and HMB, while top laggards included: HCAR, PTC, GADT, JVDC, PIBTL.

Market outlook hinges significantly on interest rate move scheduled to be announced on Monday January 29. While the status quo has already been factored into the market expectations, any surprise rate cut could likely trigger an immediate rally.

The resolution of the circular debt clearance plan in the upcoming week is anticipated to provide clarity to market participants, especially in the context of E&P stocks.

As the elections draw near, the settling dust is indicative of stabilization and with successful completion is anticipated to inject positive momentum into the market.

Investors are advised to seize every opportunity for the accumulation of blue-chip stocks.

 

USIP highlights Implications of Iranian attack on US Policy

While the US policymakers and the broader policy community are accustomed to Iranian aggression — mostly through proxies — across the Middle East, direct Iranian military strikes in Pakistan are a novel development for them.

The strikes will only reinforce US leaders’ perception of Iran as a reckless actor.

In line with that, the State Department issued a statement condemning Iran’s actions against Pakistan — and disputed the Iranian charge against Pakistan by calling Iran the “leading funder” of terrorism and instability in the region.

As for a Pakistan policy perspective, it is in United States’ interest that there is no further regional flare-up involving Pakistan which destabilizes the country at a time of economic and political stress.

Policymakers will also hope for a de-escalation to not jeopardize, or at least not disrupt, ongoing counterterrorism cooperation with Pakistan on Afghanistan.

Beyond the immediate standoff, some policymakers and US Central Command, which maintains strong ties with Pakistan, may see synergies with a Pakistan feeling threatened by Iran to balance Iranian military and proxy power in the region.

Iran-Pakistan tensions are not endemic, with incentives on both sides to maintain a functional relationship.

This basic diagnosis of Iran-Pakistan relations, combined with the United States’ Indo-Pacific priorities and uncertainty in Pakistan about working with the United States on Middle East issues, will put a ceiling on any cooperative agenda around nefarious Iranian activities in the region.

USIP rationale Iran attacked Pakistan

In a surprising turn on January 16, Iran launched missile strikes into Pakistan’s Baluchistan province, claiming it had hit two strongholds of anti-Iran insurgent group Jaish al-Adl (Army of Justice). Many Pakistanis are perplexed and just could not find the reasons for Iranian assault. Following is the logic offered by United States Institute of Peace (USIP) behind Iranian attack on Pakistan.

Iran’s calculus remains difficult to know — and Pakistan and other countries are left wondering what prompted Iran to take such a radical step against a more militarily powerful neighbor.

Iran’s logic of striking Pakistan remains opaque. On the face of it, Iran claims it struck terrorist cells of the Jaish al-Adl, which Iran says has a haven in Pakistan and implying also that the group has links to Israel.

Jaish al-Adl is a US-designated terrorist group fighting the Iranian regime with the goal of securing political and economic rights for the ethnic Baluch and Sunni in Iran.

On December 15th of last year, the group carried out an attack on a police station in the town of Rask, in Iran’s Sistan-Baluchistan province, killing several police officers.

Iranian logic that a preemptive strike against Jaish al-Adl is in response to the Rask attack doesn’t fully explain the attack.

Jaish al-Adl enjoying a haven in Pakistan with purported help from the external actors has been a long-standing Iranian complaint, but Iran has not struck Pakistan in cross-border raids before and hasn’t indicated an intent to undertake cross-border strikes of late.

There are two other possibilities for why Iran may have targeted Pakistan.

First, Iran may well be seeking to broaden the ongoing regional conflict and decided to draw Pakistan into the mix. If this is driving Iran, we may see more Iranian action in Pakistan.

Second, Iran may be attempting to force regional countries, including Pakistan, to rethink their preexisting alignment with the United States and to not offer further help that might allow the United States to counter Iran or its proxies in the region.

USIP view of Pak Iran relations

In a surprising turn on January 16, Iran launched missile strikes into Pakistan’s Baluchistan province, claiming it had hit two strongholds of anti-Iran insurgent group Jaish al-Adl (Army of Justice). Many Pakistanis are perplexed and just could not find the reasons for Iranian assault. Following is the narrative offered by United States Institute of Peace (USIP) on Iran-Pakistan relations.

Iran announced the attack in Pakistan concurrent to its strikes in Iraq and Syria. Less than two days later, Pakistan hit back with not only missiles but also fighter jets in Iran’s Sistan-Baluchistan province — claiming to target hideouts of anti-Pakistan ethno-nationalist insurgents operating from Iranian soil.

This sudden escalation and military hostilities between the two neighboring countries come at a time of heightened regional tensions, with Iranian-backed militias in Iraq carrying out near-daily attacks on bases with US forces in Iraq and Syria and escalation in the Red Sea due to another Iranian-backed entity, the Houthis, targeting global shipping.

Still the attack in Pakistan is unique. Relations between Iran and Pakistan have been generally peaceful and border skirmishes between the two sides have been minimal, or at least contained very close to the border and downplayed by both sides. This time, by announcing the attack, Iran broke from that trend.

Since the revolution in Iran in 1979, ties between Iran and Pakistan have been functional, and in periods warm, but ultimately not particularly strong. While Iran-Pakistan people-to-people exchanges are the strength of the relationship, there have been political grievances toward the other on both sides.

Iran’s Shia theocratic regime, for example, has felt ideologically discordant with Sunni-majority Pakistan. Pakistani leadership has also at times viewed the relationship through a sectarian lens, though the salience of the sectarian rift is much less acute compared to Iran’s ties with countries in the Persian Gulf region, as Pakistan has a sizable Shia minority.

Iran has also had a negative perception of Pakistan due to its strong relations with geopolitical forces opposed to Iran: the United States and Gulf powers, especially the United Arab Emirates and Saudi Arabia.

For Pakistan’s part, it has seen Iran as a difficult and not very useful neighbor due to its pariah status in the West.

Iran has also had a closer relationship with Pakistan’s archrival India, and Pakistani leaders have long suspected Iran of supporting and providing haven to anti-Pakistan ethno-nationalist groups.

Axis of resistance as defined by western media

ran's role as leader of Axis of Resistance - which includes the Houthis, Lebanon's Hezbollah, Hamas and militias in Iraq and Syria - had to be balanced against avoiding getting sucked into a regional war over Gaza.

Tehran's messaging to - and about - the Houthis requires a measure of deniability about the extent of its control over them - but also an ability to claim some credit for their anti-Israel actions.

Strikes by United States and Britain on Houthi targets have failed to deter the group which controls a large chunk of Yemen including the capital Sanaa and much of the country's Red Sea coast by the Bab al-Mandab strait.

The Houthis, who first emerged in the 1980s as an armed group in opposition to Saudi Arabia in Yemen, are said to be armed, funded and trained by Iran and are part of its anti-West, anti-Israel Axis of Resistance.

As reported by Reuters, a senior US official informed that Washington had asked China to use its leverage with Iran to persuade it to restrain the Houthis, including in conversations Secretary of State Antony Blinken and National Security Advisor Jake Sullivan had this month with senior Chinese Communist Party official Liu Jianchao.

A senior Iranian official said while Chinese officials discussed their concerns thoroughly in the meetings, they never mentioned any requests from Washington.

On January 14, China's foreign minister Wang Yi called for an end to attacks on civilian ships in the Red Sea - without naming the Houthis or mentioning Iran - and the maintenance of supply chains and the international trade order.

Victor Gao, chair professor at China's Soochow University, said China, as the world's biggest trading nation, was disproportionately affected by the shipping disruption and restoring stability in the Red Sea was a priority.

Gao, a former Chinese diplomat and an adviser to oil giant Saudi Aramco, said Beijing would view Israel's treatment of the Palestinians as the root cause of the Red Sea crisis and would not want to publicly ascribe blame to the Houthis.

A diplomat familiar with the matter said China had been talking to Iran about the issue but it was unclear how seriously Tehran was taking Beijing's advice.

Two officials in the Yemeni government, an enemy of the Houthis, said they were aware that several countries, including China, had sought to influence Iran to rein the Houthis in.

Analysts Gregory Brew of Eurasia Group and Ali Vaez of the International Crisis Group said China had potential leverage over Iran because of its oil purchases and because Iran was hoping to attract more Chinese direct investment in future.

Both said China had so far been reluctant to use its leverage, for several reasons.

"China prefers to free-ride on the US safeguarding freedom of navigation in the Red Sea by bloodying the Houthis' nose," said Vaez, adding that Beijing was also aware that Iran did not have total control over its Yemeni allies.

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Houthi spokesman Mohammed Abdulsalam said on Thursday that Iran to date had not conveyed any message from China about scaling back attacks.

"They will not inform us of such a request, especially since Iran's stated position is to support Yemen. It condemned the American-British strikes on Yemen, and considered Yemen's position honourable and responsible," he said.

The stakes are high for Iran as China is one of the few powers capable of providing the billions of dollars of investment Tehran needs to maintain the capacity of its oil sector and keep its economy afloat.

China's influence was evident in 2023 when it facilitated an agreement between Iran and regional rival Saudi Arabia to end years of hostilities.

There are robust economic ties between China and Iran, Beijing's influence on Tehran's geopolitical decisions was not absolute.

Iranian state media says Chinese firms have only invested US$185 million since then. State media also said last year that Iranian non-oil exports to China fell 68% in the first five months of 2023 while Iran's imports from China rose 40%.

By contrast, Chinese companies committed last year to invest billions in Saudi Arabia after the countries signed a comprehensive strategic partnership in December 2022.

While China could not be ignored, Tehran had other priorities to consider and its decisions were shaped by a complex interplay of factors.

Regional alliances and priorities as well as ideological considerations contribute significantly to Tehran's decisions.

Iran has to adopt a nuanced strategy when it came to the Gaza war, as well as the Houthi attacks, and that Tehran would not abandon its allies.

 

 

US and UK nationals ordered to leave Yemen

Yemen's Houthi authorities have ordered the US and British staff of the United Nations and Sanaa-based humanitarian organizations to leave the country within a month, a document and a Houthi official said on Wednesday.

The decision follows strikes by the United States and Britain, with support from other nations, against military targets of the group, which has been launching attacks on commercial ships in the Red Sea that is says are linked to Israel.

The US government last week also returned the Houthis to a list of terrorist groups as Washington tries to stem attacks on international shipping in the Red Sea. The Houthis have said their attacks are in solidarity with the Palestinians as Israel bombards Gaza.

"The ministry ... would like to stress that you must inform officials and workers with US and British citizenships to prepare to leave the country within 30 days," said a letter sent by the Houthi foreign ministry to the UN's acting humanitarian coordinator in Yemen, Peter Hawkins.

The letter also ordered foreign organisations to not hire American and British citizens for Yemen's operations.

Houthi top negotiator Mohammed Abdulsalam confirmed the letter's authenticity to Reuters.

The US embassy said in a statement it was aware of reports about the letter but "cannot speak on behalf of the UN or humanitarian organizations in Yemen as to what they may have received from Houthi 'authorities'".

The British embassy said staff had not yet been told to leave and the mission was in close contact with the UN on the issue.

"The UN provide vital assistance to the Yemeni people ... via the very sea routes that the Houthis are jeopardizing," the British mission in Yemen said in a statement. "Nothing should be done that hinders their ability to deliver," it added.

The Houthi movement controls much of Yemen after nearly a decade of war against a US-backed coalition. The war has shifted to a no-war, no-peace stalemate as the fighting has largely stopped, but both parties have failed to renew formally a UN-brokered ceasefire.

US and British warplanes, ships and submarines have launched dozens of air strikes across Yemen in retaliation for Houthi attacks as container vessels have been forced to divert from the Red Sea, the fastest freight route from Asia to Europe.

US and British forces on Tuesday targeted a Houthi underground storage site as well as missile and surveillance capabilities, the Pentagon said.

 

 

US-led attacks on Yemen an exercise in futility

The United States and British operations against Houthi militants threatening ships in the Red Sea are making matters worse, China’s envoy to the European Union warned.

“They can only escalate the tension and it’ll not guarantee or maintain the safe passage of the commercial vessels,” Fu Cong said in an interview with Bloomberg. “It’ll even make the passage more dangerous.”

US Central Command forces conducted military strikes Wednesday against two Houthi anti-ship missiles, the latest in a series of efforts to diminish the group’s ability disrupt trade.

Hundreds of vessel operators that cross the Red Sea to access the Suez Canal as they move cargo between Asia, the US and Europe are avoiding the shortcut and taking the longer southern route around Africa.

It’s a massive diversion that’s delaying delivery of billions of dollars in goods, adding to costs and carbon emissions, and fueling fears of broader economic fallout, according to today’s Bloomberg Big Take. 

As the US and UK naval operations continue, the EU is moving ahead with its own plans to established a naval operation in the Red Sea to protect commercial shipping, but it’s still working out the details.

Fu, who is China’s top envoy in Brussels, said the Houthi attacks are a spillover from the Gaza crisis, where Israel has conducted its own military operations against Hamas militants who attacked, kidnapped and killed Israeli citizens on October 07, 2023.

Fu urged the international community, and the US in particular, to exercise more leverage or pressure on the Israeli authorities to stop the indiscriminate bombing of Gaza and in particular the civilians.

“Common sense will tell us that by escalating the tension, you will only aggravate the situation and you cannot resolve the problem with the approach that the US and UK are taking,” Fu said.

Courtesy: Bloomberg