Karachi, December 04, 2017 (PPI-OT): Pakistan Market: Nov’17 Review and Outlook
The month of Nov’17 witnessed an extension of the prevailing bearish momentum at the bourse with the index losing 1.1%MoM. Elevation in political noise – a 21 day long sit-in the federal capital culminating in the resignation of the Law Minister, along with anticipated foreign selling (on MSCI portfolio rebalancing) continued to weaken sentiments. To this end, foreigners adjusted portfolios to the same, cumulatively selling US$51.8mn worth of equities, with bulk selling coming in towards the end of the month (US$19.8mn worth equities sold on Nov 30’17).Local investors remained risk averse where the lack of involvement was clearly reflective in lower trading volumes/value (down 23%/18%MoM) in Nov’17.
Apart from Oil and Gas (+3.3%MoM mimicking oil price trend) and Automobiles (+2.4%MoM on anticipated model launches), performance at the mainboard remained rather unexciting. Going into Dec’17, we expect the market should derive strength from: 1) positive reiteration on the macro front despite political uncertainty (successful Eurobond/Sukuk issue), and 2) bullish oil price outlook benefitting heavyweight Oil and Gas sector. In addition to, we also push for exposure in sectors like Banks (MCB, UBL, BAFL), Autos (INDU), Cements that are thematically well placed.
Sector Performance: Oil and Gas led the charge in terms of price performance posting a positive return of 3.3%MoM in anticipation of extending oil supply cuts in OPEC’s Nov’17 meet. Following on, Automobiles (+2.4%MoM on anticipation of model launches), Electricity (+1.3%MoM particularly KEL) along with Commercial Banks (+1.1%MoM on attractive value propositions) also ended in green. Laggards included Food Producers (-5.2%MoM on poor earnings performance), Textiles (-1.9%MoM on weak fundamentals), Cements (-0.3%MoM on higher coal prices despite improvement in dispatches) and Chemicals (-0.5%MoM on profit taking).
Portfolio rebalancing effect evident in Nov’17: Following MSCI’s Nov’17 semi-annual index review where Pakistan’s weight was reduced to ~8bps (w.e.f. Nov 30’17) from around 14bps when Pakistan was graduated into the EM Index, foreigners resorted to selling US$51.8mn worth of equities during the month. Bulk of the selling was seen towards the end – cumulative US$32.4mn worth equities sold during the last two days. Positions were offloaded in Fertilizers (net sell: US$34.5mn) and Commercial Banks (net sell: US$20.6mn) while Oil and Gas sector was the key recipient (net buy: US$16.2mn).
Investment Perspective: Going into Dec’17, we expect the market should derive strength from: 1) positive reiteration on the macro front despite political uncertainty (successful Eurobond/Sukuk issue), and 2) bullish oil price outlook benefitting heavyweight Oil and Gas sector. In addition to, we also push for exposure in sectors like Banks (MCB, UBL, BAFL), Autos (INDU), Cements that are thematically well placed.