Pakistan Market: May Review and Future Outlook

pakistan-flagDuring May 2015 Karachi Stock Exchange (KSE) witnessed lackluster activity with benchmark KSE-100 Index average trading volumes plunging by 54%MoM to 135 million shares, a seven month low. This was in line with historic market performance and May2015 was not an exception. The benchmark index declined by 2.0%MoM during the month under review due to pre-budget uncertainties kept investors on the sidelines.

As a result, the KSE-100 Index’s FY15TD/CY15TD return settled at 11.5%/2.9%. On the macro front, improvement continued as: 1) SBP reduced its policy rate by 100bps (lowest in the past 42 years) and 2) 10MFY15 current account deficit declined by 55%YoY to US$1.3 billion as compared to US$2.9 billion during the same period last year.

Comparing the market’s price performance against a stable macroeconomic outlook, it can be argued that the disconnection between both, which narrowed down in April’15 has once again widened.

Analysts believe this might not be the case as the current round of poor KSE performance is primarily due to pre-budget phenomenon more than anything else. Furthermore, analysts remain bullish on the market with multiple re-rating themes and see market yielding another 12% to reach December’15 index target of 37,000 points.

Average traded value also tapered off by 38%MoM to US$86.7 million as compared to US$139.6 million during April’15. During the month under review Companies and Mutual Funds remained sellers, cumulatively selling equities worth US$97.4 million. Conversely, individuals with net equity purchase of US$33.7 million led the buyers at the bourse followed by Banks/DFIs (net buy US$25.4 million) and other organizations (US$18.2 million).

Continuing on with the previous month’s trend, foreign investors remained net buyers, having bought equities amounting to US$14.9 million. During May’15, foreign institutional investors sold positions in Banking and Cement sectors as these sectors saw net outflows of US$5.21 million and US$5.07 million, respectively, while Chemicals (US$11.99 million) coupled with Oil & Gas (US$8.24 million) led the inflows. Improvement in foreign flows can be attributed to recent MSCI Semi Annual Review where Pakistan within the Frontier Market space witnessed the most movements.

As clarity emerged on the budget front, trading activity is likely to improve at the KSE where avg. daily traded volumes during the final week of May’15 were recorded at 186.2 million shares, up 70.7% against the previous week’s avg. of 109.1 million shares. This trend may pick further due to ample available liquidity in the system. Conversely, any negative development in the upcoming budget can exert pressure at the bourse.



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