Karachi, June 29, 2018 (PPI-OT): PSX Corridors Cheer Amnesty Scheme
After a nosedive last week, KSE100 Index took a breather and rose by 274pts (up 0.7%WoW) as investors expected ongoing Amnesty Scheme to beef up domestic liquidity. This also concluded the fiscal year FY17-18 with the benchmark index declining 10% for the year, with E and P and Fertilizer sectors standing out as top contributors (returning 33% and 11%, respectively) while Cements and Refinery sectors were worst performers (returning -42% and -39%, respectively).
Trading activity rose during the week with average daily traded volumes going up by 7%WoW to 182mn shares while the average traded value declined by 1%WoW to USD60mn.
In global markets, crude oil rallied by USD5.6WoW (up 8%WoW) to USD78.7 (Brent) post 1) positive developments emanating from OPEC meeting and 2) US President Donald Trump’s announcement to impose sanctions on countries importing Iranian oil. As per US State Department announcement, the Trump Administration could impose sanctions against governments that do not cut imports of Iranian oil to “zero” by Nov 4, 2018. The move came in as a surprise as countries were expecting waivers and a longer grace period before sanctions came into effect.
On domestic economic front, Pakistan Foreign Office confirmed that Financial Action Task Force (FATF) would most probably keep Pakistan on its Grey List and ruled out any possibility of placing the country on the Black List. As expected, the news flow did not have much impact on the markets as investors were anticipating similar kind of decision.
In local equity market, ongoing Amnesty Scheme remained the most important topic of discussion on the streets. According to unconfirmed news reports, PKR45bn+ worth of taxes have been collected with another PKR100bn+ in the pipeline. The success of the scheme will improve domestic liquidity, but its impact on the Balance of Payment may be limited as we expect foreign repatriations to be on the lower side.
In terms of sector performance, Automobile Assemblers and Oil and Gas Exploration companies returned 2.4%WoW (contribution to KSE100: 25pts) and 1.4%WoW (contribution to KSE100: 70pts), respectively. Major reason behind the positive E and P stock price movement was global oil price rally while Auto Sector performed on the back of third price hike announcement by Indus Motors (INDU, +4.2%WoW).
Cements and Insurance were worst performers returning -3.1%WoW and -4.8%WoW, respectively; with the former likely reacting to the possibility of further increase in international coal prices (post rally in oil prices) and continued pressures on PKR.
Foreign investors sold shares worth USD15.5mn during the week. On the domestic front, Mutual Funds and Brokers offloaded shares worth USD8.4mn and USD8.3mn, respectively. On the other hand, Insurance Companies and Banks stood out as net buyers of USD22.9mn and USD6.5mn, respectively.
Key news this week
Outlook changed to negative: Moody’s affirms B3 deposit ratings of five banks (Banks) – Negative
US demands world halt Iranian oil imports by Nov 4 – Negative
IMC raises car prices third time in six months – Positive
NEPRA okays Rs1.25/unit hike in May power tariff – Negative
Pakistan may remain on grey list: FO – Neutral
This week’s top stories
Pakistan Equity Market – Increase in Gas Tariffs to Burden End Consumers
Pakistan Equity Market – Amnesty Scheme’s Success to serve as a Boon for Domestic Liquidity
Oil and Gas Dev. Company Limited – Supply Flush Likely off Valuations
Equity Market Outlook and Perspective
The news flow on Amnesty Scheme will continue to be the most important sentiment driver over the next week. In case the scheme manages to translate into sizeable foreign repatriations (USD2bn+), it will serve as a breather for the Balance of Payment and strained foreign reserves. Moreover, any extension in the deadline (currently set at June 30, 2018) will also be taken positively for the market.