The benchmark of Karachi Stock Exchange, KSE-100 index closed the week ended August 28, 2015 with a marginal decline of 0.21%WoW at 34,447 levels. The average daily trading volume was marred by heightened volatility and prevalence of adverse external factors that included tumbling Asian markets and volatility in global oil prices. Key news flows included: 1) heightened volatility witnessed in global oil prices as Brent fell below US$45/bbl for the first time in six years but there was quick recovery by more than 10% on Friday and stabilized at US$47/bbl, 2) inking of a MoU by the three stock exchanges of the country to incorporate a unified Pakistan Stock Exchange, 3) SBP stating that it expects the Pak Rupee (PkR) to remain stable against the US$ as, after PKR declined by 2.9%WoW against the Greenback, 4) country’s total liquid foreign exchange reserves for the week ended Aug 21’15 marked a decline of US$146 million to US$18.51 billion, and 5) GLAXO announcing a spinoff of its consumer healthcare unit into a separate entity GSK Consumer Healthcare Pakistan. Gainers for the week included MLCF, HMB, ABL, and KAPCO whereas laggards were AGTL, LOTCHEM, INDU and MCB. Average traded volumes reflected a rise of 4.89%WoW t0 300.5 million shares. Foreign outflows for the week registered a slight decrease to US$42.2 million as compared US$43.5 million of outflows for the week before. Analysts expect confidence to return after the turmoil witnessed at the beginning of this week subsides. Strength witnessed in global oil prices (Brent at US$47/bbl), lower inflation outlook for Aug’15 CPI (AKD estimate at 1.6%YoY) and expectations for another 50bps cut in the upcoming Sep’15 MPS, underpin our investment case for the KSE‐100 index hitting 37,000 levels by end 2015 offering return of 7.4%). Analysts re‐iterate their buy on leveraged plays i.e. ENGRO, MLCF, FATIMA and dividend yielding scrips including KAPCO, PTC, POL and NBP.
Lately Pakistan’s liquid foreign exchange came under pressure as total liquid reserves held by the country declined to at US$18,508 million on August21, 2015.The break-up of the foreign reserves position is as under: reserves held by the State Bank of Pakistan (SBP) were US$13,458.4 million and net reserves held by banks amounted to US$5,050.3 million. During the week ending under review reserves held by SBP decreased by US$157 million to US$13,458 million as compared to US$13,615 million held during the previous week. This decline can be attributed to SBP making payments of US$ 94 million on account of external debt servicing.
Historically subdued exports have remained a serious concern. The country would have faced real precarious situation had there was no regular and substantial inflow of remittances by Pakistanis living abroad. In continuation of the recent trend exports for the month of July’15 declined by 16.9%YoY/20.7%MoM to US$1.59 billion. Other than petroleum products, all other products registered a marked decline, with highest dip witnessed by heavyweights Textiles and Food sectors, which were recorded at US$1.02 billion and US$219.4 million, posting the decline by 11.72%YoY and 20.5%YoY respectively. Going forward, despite anticipated weakness in exchange rate due to the recent regional currency turmoil, analysts expect Textile exports to remain weak primarily on slow Chinese demand and EU economy limiting GSP+ benefits.
The export numbers for July’15 continued to witness a decline. In this regard, the fall was led by decrement in the exports of major segments (both low value and value added goods). Low value added section witnessed a decline of 17%YoY / 2%MoM during July’15, mainly led by heavy weights like cotton yarn and cotton cloth declining by 13%/20% on yearly basis. Consequently, lower value good exports amounted to US$294 million. Performance of the other section also remained similar as higher value goods exhibited a decline of 10%YoY/6%MoM to US$732 million. Exports of Bed wear, Knitwear and Readymade garments plunged by 21% / 8% / 1% on yearly basis, being the major contributors for the drop in exports.
While lukewarm Chinese demand has kept significant pressure on cotton yarn exports since the country’s withdrawal of its stockpiling policy, higher value goods exports have also been witnessing a downfall on account of a downturn in the EU economy. This is expected to limit the benefits of GSP+ status, which previously overshadowed the downfall in exports of lower valued goods. However, the above stated negative factors are expected to downplay the impact of recent positivity of a weaker PkR, continuing to paint a weak picture for the sector’s fundamental outlook. .
In Addition to ongoing expansions (CHCC, DGKC and ACPL) being undertaken to capture additional local demand, a new Chinese player is also on the verge of setting up a plant in Pakistan. In this regard, Punjab government has signed a MoU with a Chinese cement manufacturer (Yantai Baoqiao Jinhng) for establishing a cement plant near Salt Range in Punjab, at an anticipated investment of US$350 million and indicative capacity of 3.0 million tpa. With supply surplus expected to exceed anticipated demand by 9 million tons in FY18, rising to 10 million in FY19 with Chinese plant), likely infrastructure spending to buoy demand, coupled with different manufacturers with high capital commitments (cost rationalization measures), analysts believe that concerns over predatory pricing in the industry appear stretched in the near term. Valuations for the sector have opened up in the past one week (market capitalization of the sector down by 4.7%), providing an attractive opportunity for taking an investment exposure.
Pakistan stock market, KSE decline, investor failing in reading market movement, immediate recovery after substantial fall, time to redefine holding