Are India Pakistan likely to fight another war on Kashmir?

This morning when I went though Pakistan’s leading English newspaper Dawn, two headlines gave me jittering feeling Kashmir can never become part of Pakistan, Sushma tells Nawaz and Waiting for the day Kashmir becomes Pakistan: Nawaz.

This prompted me to once again read one of blogs http://shkazmipk.blogspot.com/2013/02/kashmir-can-initiate-third-world-war.html posted as back as in February 2013. Its caption was ‘Kashmir Can Initiate Third War’. I still remember many of my critics termed this absurd.  Despite lapse of three years, I stand firm on my words that the Kashmir dispute is not over land but water. The conclusion was based on the overwhelming perception that the third war will be fought over water.

I subscribe to the theory that British Raj prevailed over the world following ‘divide and rule’ policy, which is being followed by the US now. British Raj had left two scars on this planet, Kashmir and Palestine, which are oozing blood for more than six decades.

While going through local and international publications and watching leading English TV channels, I get a feeling that the arms sellers are creating new conflicts to initiate wars. I read a news item with profound grief about the killing of over 80 Hazaras in Afghanistan. Publications are filled with rising tension between India and Pakistan, Afghanistan and Pakistan and Iran and Pakistan. I often wonder is the ground being created for some proxy wars in the region.

I strongly believe that any encounter between India and Pakistan could prove disastrous because both the countries now suffer from war mania, may be because they suffer from complacency of being ‘an atomic power’. Dropping a few atomic bombs may be too easy and the objective could be achieved in few minutes. However, do the war mongers ever bother to understand the devastating effects of this adventurism?

Pakistan stock market closes week almost flat

For the week ended July 22, 2016 the benchmark of Pakistan Stock Exchange PSX-100 closed almost flat as compared to a week ago. The market managed to close above 39,000. However, the overall performance was not disappointing. CYTD returns were reported at above 19 percent. Additionally, the month to date foreign inflow of US$31.7 million is a strong indicator for foreign investments picking pace, following Pakistan’s re‐entry into the EM club.

News flow impacting market during the week included: 1) in the T‐Bill auction conducted on Wednesday, cut‐off yields for 3, 6 and 12 months posted decline, where banks aggressively participated in the auction with bids amounting to Rs740.9 billion against the target of Rs200 billion, 2) net inflow of almost $600 million from China, foreign direct investment (FDI) in Pakistan surged 38.8% as Pakistan received FDI of US$1.28 billion during 2015-16, which was US$358.2 million higher than receipts a year ago.The unusual jump in FDI in the last month of 2015‐16 was on the back of an inflow of US$138.5 million in the telecommunications sector, 3) SECP has formally sent the final draft of the Companies Bill, 2016 to the Ministry of Finance for initiating necessary legislative process and its approval by the Parliament and 4) Textile exports went down by one billion dollars during last financial year due to massive decline in cotton crop production and slowdown in the economy of China pushing Pakistan's textiles and clothing exports to US$12.45 billion during FY16.

Leaders exhibiting performance over the week were: ASTL, NCL, and PSMC (+7.1%WoW), while laggards were FFBL, DAWH and HASCOL. Average daily traded volume grew by 7%WoW to 207 million shares, where SNGP, DFML and PAEL were the volume leaders.

Considering the stellar run‐up in the last quarter of the outgoing FY16 gaining 10.7% during the period), analysts expect the market to enter a consolidation phase. Directionless trading in the absence of major triggers may prevail. Market participants are advised to closely follow: 1) political developments as the opposition plans to protest against inaction on Panama leaks investigations, 2) fertilizer offtake numbers for the month of June'16, gauging the sensitivity of recent subsidies on demand and, 3) details of GoP policy measures in response to the final meeting with the IMF over the release of EFF's last tranche (negotiations start July 27th). Additionally, earnings announcement may fuel strong sentiment for consensus beating stocks.

Firming up in June'16, the global commodity index rose by 3.5%MoM. While losing some ground on account of Brexit and a strengthening US$ as a consequence, oil prices consolidated around US$48/bbl whereas prices of coal were up 6.4%MoM on supply disruptions in major markets and cotton witnessed easing supply concerns depicted strength during the month under review. Steel and Urea prices declined on account of excess supplies amid a weak demand outlook. While recovery has been steady during June’16, most commodity prices still remain at their multi‐year lows. Analysts expect prices to consolidate going forward; however a sustainable reversal of the downtrend remains contingent on an improving demand scenario.

Current Account deficit for June'16 was recorded at US$61 million lower than US$252 million in June'15 (US$792 million in May'16) where higher trade deficit was countered by healthy remittance flow for the month was US$2.07 billion, up 13.8%YoY. This implies, FY16 current account marking a deficit of US$2.52 billion, lower 6.8%YoY reflecting: 1) expanding trade deficit, up +8%YoY as weak exports restricted savings from oil imports, 2) steady remittance inflows (up 6.4%YoY) and 3) US$713 million CSF payments. Going forward, analysts expect slight pressures to mount and project current account to post deficit of US$5.1 billion in FY17 with trade deficit increase of 11%YoY: on 1) US$45/bbl assumption for crude oil and 2) limited recovery in exports on low cost competitiveness. However, positive surprises can emerge if CSF payments materialize (US$900 million approved for next year) and on higher than expected growth in remittances.

Pakistan Market: Daily trading volume up 35 percent

The benchmark of Pakistan Stock Exchange PSX-100 resumed its pre-Brexit bullish momentum after Eid holidays, touching an all-time high to close at 39,188 level, up 3.7%WoW. As concerns eased slightly, the market was further supported by additional stimulus announced by Japan and stronger data from the U.S. coupled with recovery in crude oil prices, all favorable for the local bourse. Overall activity at the market improved drastically, average daily traded volume for the week increased by 35.5%WoW to 193.8 million shares.

 Key news flows during the week included: 1) Privatization Commission approved offloading of the government remaining 40.25% stake in KAPCO and Expressions of Interest from prospective bidders was invited, 2) three foreign investors including Shanghai Stock Exchange (SSE) have expressed interest in acquiring a stake of up to 40% in the Pakistan Stock Exchange, 3) total deposits of the banking industry crossed Rs10 trillion as of Jun'16 , up 10%YoY as compared to Rs9.14 trillion at the end of last financial year, 4) GoP announced a plan to lay an oil pipeline from Gwadar to China for the export of crude and task given to state construction firm Frontier Works Organization, and 5) GoP raised over Rs236 billion through auction of PIBs with cut-off yields for 3, 5 and 10-year papers declining noticeably.

Performance leaders during the week were: HASCOL, INDU, PIOC and SNGP; while laggards included: EFOODS, ABL, KAPCO and FATIMA. Volume leaders during the week: KEL, SNGP, DCL, EFERT and TRG. Foreign participation improved significantly where net inflow during the week amounted to US$21.4 million as against net outflow of US$1.2 million in last five sessions.

The market is still likely to come under pressure due to the global developments but analysts believe it could sustain current levels over the short term. Support should come from results season commencing next week where major sectors are expected to post strong earnings performance. However, risks for a pullback will linger in the form of: 1) political developments gaining prominence, 2) oil price swings likely to impact the local market, 2) another rate cut in the upcoming monetary policy proving negative for banking scrips. On the global front, upcoming US FOMC meeting and development on UK‐EU negotiations need to be tracked with implications for growing participation.

The IMF recently released its staff level report for the second last review under the IMF EFF stressing the country to continue structural reforms beyond the program's conclusion. Commending Pakistan on its strong performance on the program so far, the report also reiterates largely positive macro outlook though risks remain in the form of weak trade dynamics, policy slippages and political noise. With only one review left, IMF has added two structural benchmarks related to energy sector namely: 1) KAPCO's sell‐off and 2) updating plan for the resolution of circular debt. The twelfth review entailing disbursement of US$100 million is scheduled for end‐Sep'16 where successful achievement of targets would mark the conclusion of the facility ‐ the first for Pakistan. In line with our expectations, GoP will not be entering a new IMF agreement owing to stable external metrics however, GoP is expected to remain engaged in a consultative process with the IMF though without imposition of targets.

Pakistan stock market coming out of Brexit syndrome

As the fears of Brexit started easing benchmark of Pakistan Stock Exchange, PSX‐100 Index managed to close at 37,784 for the week ended on Thursday. Friday was a holiday on account of last Friday of Holy month of Ramadan.

Foreign selling also continued, though with much lesser magnitude reported at US$3.61 million during the week as compared to US$20.56 million a week ago. Ramadan factor eclipsed MSCI EM upgrade as the benchmark index barely crossed pre‐MSCI level of 37,518.

Average daily traded volumes fell by 8%WoW to 143 million shares as compared 155 million share due to trading curtailed to four day. Leaders during the week under review included FATIMA, HCAR, DAWH, AICL and ABL, while laggards included MTL, NML, AGTL, FFC and FFBL.

Key developments during the week included: 1) Ogra recommending an upward revision in per liter prices of HSD by Rs3.75 to Rs79.27 and motor gasoline petrol by Rs1.93 to Rs66.20, despite crude oil prices easing in the international markets, 2) ADB approving a US$600 million loan to help Pakistan roll out major structural reforms to improve the performance and financial sustainability of its PSEs, 3) the book‐building process for the IPO of TPL Properties has raised Rs696.8 million at the strike price of Rs12.50/share, 4) LSM posting a growth of 3.92%YoY in the 10MFY16 reflecting a partial revival in the industrial output, and 5) KEL submitting a Multi‐Year Tariff petition with Nepra seeking an increase in tariff by Rs0.66/unit in the name of O&M component for ten years commencing from July 1, 2016 to June 30, 2026 and has also sought a change in claw‐back formula threshold.

Though Brexit fears eased in the outgoing week, volatility is expected to remain relatively higher due to unfolding developments in the process. Nonetheless, re‐rating associated with the MSCI EM upgrade will likely provide impetus to the Index. Additionally, the end of Ramadan will mark return of volumes out of dormancy to normal levels. Keeping in view marker dynamics analysts recommend taking new positions in main blue chips that will likely make way into MSCI EM list that OGDC, HBL, MCB, UBL, LUCK, ENGRO, FFC, HUBC and PSO.

Latest banking sector data released by State Bank of Pakistan for May'16 indicates that banks' balance sheet continued to grow at strong levels, up 19%YoY, to Rs12.1 trillion. While private sector credit growth has not been substantial on account of bank's continued preference for risk‐free government securities (banks' lending to government grew by more than 29%YoY in May'16, posting growth of 8.2%YoY in May'16 alone. However, consumer financing grew by 9.3%YoY to 7.7% of the private sector loans as banks look to re‐focus on high margin auto finance and personal loans in the current lower inflationary environment. Spreads are likely to bottom out on possible monetary tightening in CY17. Analysts retain our liking for banks that offer: 1) superior ROE profile, 2) keen focus on growing low cost current accounts, 3) diversified income streams and 4) ability and reach to capture CPEC related investments.

Corporations that Control World

On June 13, 2016 "Information Clearing House" has posted a list of surprisingly small number of corporations that control massive global market shares. How many of the brands below do you use? Please take some time to go though the list by clicking this link http://www.informationclearinghouse.info/article44864.htm

Allow me to say that these corporations control assets bigger than many countries have and therefore these entities enjoy the power to install and topple governments in many countries.