Pakistan Stock Exchange witnessed a volatile week on devastating floods

Pakistan Stock Exchange witnessed a volatile week as the country experienced devastating floods triggered by the heaviest monsoon rains in a decade which killed about 1,200 people and submerged one-third of the country.

Although, there was respite due to receipt of US$1.1 billion tranche from International Monetary Fund (IMF) and crude oil price falling by US$6/bbl on the back Chinese economic weakness, hawkish FED stance and reemergence of Iranian supply. The index lost 283 points to close at 42,309 on September 02, 2022, last trading day of the week.

On the macro front, PKR/US$ parity remained range bound, gaining 0.76% during the week. This came on the back of IMF Board decision to restart Pakistan’s EFF facility, with the receipt confirmation coming on Wednesday, resulting in currency rebounding from its July 2022 highs of PkR240/US$. Furthermore, CPI surged to a multi-decade high of 27.3%YoY during August 2022, as authorities continue to warn massive flooding in the country could exacerbate already skyrocketing prices, especially food items.

Trade deficit for August 2022 was reported at US$3.5 billion, down 27%YoY, while foreign exchange reserves were reported at US$7.7 billion on August 26. Market participation remained very dull as average daily turnover decreased by 15.4%WoW to 211.3 million shares for KSE-All Companies index. On the commodities front, prices of MS/HSD were reported at PKR235 and PKR 249, as GoP decided to end the month by increasing petroleum levy on MS.

Other major news flows during the week were: 1) Pakistan is weighing the option to seek an emergency loan from the IMF, estimating damages at PKR2.5 trillion and GDP growth to slow down to just 2% during the current financial year, 2) The Onsite Inspection Team of the Financial Action Task Force (FATF) is scheduled to arrive Pakistan in the first week of September, 3) IMF on Monday revived Pakistan’s program and its Board approved US$1.16 billion tranche, 4) The FBR has provisionally collected net revenue of PKR489 billion during August 2022 as against a target of PKR483 billion.

Leather & Tanneries, Cements and Paper & Board sectors were amongst the top performers, up 8.3%/3.9%/3.3%WoW respectively. On the other hand, Tobacco, Transport and Refineries were amongst the worst performers with declines of 7.1%/6.6%/%WoW.

Flow wise, major net selling was recorded by Insurance (US$7.38 million). On the other hand, Individuals and Banks absorbed most of the selling with net buy of US$2.38 million and US$3 million respectively.

Stock wise, top performers included: SRVI, KOHC, FABL, CEPB and JVDC, while top laggards were: POML, NML, PAKT, PSEL and DAWH.

The outgoing week saw confirmation of IMF’s tranche receipt, while other inflow commitments from friendly nations resulted in the domestic currency standing strong. Although, impending near-term inflation is expected to wreak havoc, especially on the food/energy front, creating an overall shaky sentiment. Until foreign exchange reserves come toward a more secure position, domestic currency is expected to remain volatile, keeping investor confidence muted. However, with the economy slowing down—an intended outcome of the SBP’s contractionary policies—and the effects of floods across the country, could add further fuel to the fire. However, recent slump in commodity prices, especially oil may be a positive development for country’s external account, pushing CAD to remain on the lower end. We recommend market participants to stay cautious and focus on defensive plays. Any good bull run should be taken as an exit point.

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