During this past week ending 19th February 2016, the PSE‐100 index closed at 31,012 levels, down 1.4%WoW amid persistent profit taking. Despite relief in regional markets and gains in global oil prices, continued foreign selling (outflow of US$13.2 million as compared to US$17.3 million last week), lackluster results announcements and adverse news flows (regulatory action, legal challenges) propelled bearish pressures. News flows for the week included: 1) NEPRA approved upfront tariff for HUBCO’s US$1.9 billion, 660X2MW coal‐based power project at a levelized tariff of Rs8.12/KwH for a period of 30 years, 2) GoP raised Rs198 billion as compared to the target of Rs250 billion in T‐Bill auction came down, 3) GoP decided to challenge the SHC decision allowing pharmaceutical companies to increase prices without approval from DRAP, and 4) ECC of the cabinet approved reallocation of 60mmcfd Mari shallow gas to FFC (34mmcfd), FATIMA (13.5mmcfd) and EFERT (12.5mmcfd) with effect from 22nd February 2016 and proposal of the FBR regarding continuation of reduced rate of 0.3% withholding tax on non-filers. Stocks delivering gains were: NBP, PPL, AICL and, POL, while laggards were: EFOODS, PSMC, ICI and AKBL. Activity continued to decline with average daily turnover declining to 123.9 million shares, down 12%WoW, where TRG, DFML, SNGP were emerged as volume leaders. Disclosure of price sensitive information including developments on corporate action accompanying earnings are expected to continue keeping investors on their toes, as LUCK, HBL, DAWH, KAPCO and INDU are due to report earnings in the coming week. Additionally, developments on the political front, particularly regarding regulatory agencies have the potential to spillover, negatively influencing sentiment and prices.
According to a report by AKD Securities, its cement universe has lost 0.6%MTD amid concerns of price undercutting and inflow of Iranian cement on lifting of sanctions. There seems no immediate concern on price stability as industry grew at a remarkable rate of 15%YoY during 7MFY16 with major players operating close to full capacity, industry utilization at 80%. Further stimulus to the domestic demand may come from successful CPEC execution, further countering the risk of price war amid 7.4 million tons per annum expansions announced.
As regards Iranian cement imports, sector experts see limited scope for its demand due to low quality and limited target market. In this backdrop, analysts believe concerns of profitability are unfounded where the industry remains in a sweet spot (historically low energy costs and long withstanding cement prices).
Notwithstanding the initiation of negative interest rates in Japan, recent strength in the Yen against US$ (6.1% appreciation CYTD) is indicative of: 1) flight to this safe haven currency in an environment of higher risk, 2) weakness in the US$ dollar underscoring expectations of delayed rate hikes following US Fed’s November 2015 tightening and 3) increasing divergence in monetary policy stance’s as disparity between global economic growth widens. Despite recent strength, policy actions by the Japanese Government and central bank are expected to induce weakness in the Yen, as export competitiveness remains a basic tenet of their economic policy. The recent softness in price performance for Autos is being overplayed, expecting a return to fundamentally driven (continued quantitative easing, faltering economic growth) weakness in the JPY/US$.