Karachi, April 03, 2020 (PPI-OT): Weekly Review
Continuing the momentum gained in the latter part of last week, KSE-100 index closed the outgoing week at 31,622pts, gaining 12.5%WoW – the highest ever in pts (+3,512pts WoW) and highest weekly gain in percentage terms since Feb’00 while outperforming other global equity benchmarks on weekly basis (MSCI EM/FM: down 0.48/2.92%WoW). Across the board cheap valuations (CY20F P/E: 4.6x, at the start of the week), cabinet approval of the stimulus package announced last week and kick-start of essential industries in the coming week (another incentive package for Construction sector announced today) aided investor sentiment in tandem with encouraging newsflow regarding number of recoveries from COVID-19.
As a result, volumes improved to 227.7mn shares vs. 150.0mnshares traded in the last week with trading activity tilted towards main bourse – KSE-100/KSE-All share ADTV standing at 81.4% vs. 71.4% in the past week. Within mainboards, Cements led the show, gaining 26.0%WoW on expectation of the construction sector incentive package and news flows suggesting initiation of construction activities for Diamer Bhasha dam. Cement sector was followed by E and Ps/OMCs gaining 15.7/23.2%WoW (as oil prices (Brent) were +31.5%WoW at the time this note goes into publishing, gaining in anticipation of deal between Saudi Arabia and Russia). Flow wise, Individuals (Net Buy: US$13.0mn), Mutual Funds (US$10.3mn), and Insurance (US$9.0mn) absorbed outflow from foreigners (Net Sell: US$36.1mn). On the international front, global institutional investors continue to sell despite undemanding valuations driven by redemption pressures across both active and passive investment strategies.
At the same sovereign allocators of global capital are also calling in redemptions due to calls for support from respective governments to fund relief measures as economies face various levels of impacts due to the virus outbreak. In our view, a fresh round of allocations may only be likely over the medium to longer term as economies only gradually reopen within the backdrop of large scale stimulus programs launched by central banks. Stimulus programs will eventually translate into higher risk tolerance improving allocations towards frontier and emerging markets. For the week, top gainers within our AKD universe were i) ASTL (+40.4%WoW), ii) CHCC (+37.2%WoW), iii) MLCF (+33.5%WoW), iv) PIOC (+32.9%WoW), and v) KAPCO (+32.0%WoW).
We continue to advocate buy-and-hold investment strategy with a long term investment horizon since the impact of COVID-19 outbreak is yet to be completely gauged (Wuhan city and Hubei province lock down eased after two months). We continue to monitor data regarding the virus, testing capacity augmentation, provincial measures to mandate social distancing (including length and severity of “lockdowns”) to upgrade our stance as developments unfold.