Political unrest likely to rein in stocks

Shahid Shah
Sunday, Oct 30, 2022

Pakistan stocks lost momentum due to political uncertainty this week, while the week ahead would also stay in check on account of political unrest, traders said on Saturday.

Contrary to expectations of sustained celebration at the capital market on exiting the grey list of the Financial Action Task Force (FATF), Pakistan’s capital market closed in red following the announcement of a long march by former prime minister Imran Khan.

Arif Habib Limited, in its post-week analysis, said, “The market is expected to remain range bound in the upcoming week as the participants will remain cautious due to the political noise in the country.” Furthermore, the prime minister’s visit to China to enhance bilateral corporation and development on China-Pakistan Economic Corridor cooperation might bring some positive momentum back in the market.

“The market commenced on a positive note this week as Pakistan exited the FATF grey list after four years,” the report said, adding that the momentum shifted towards the red zone after Imran Khan announced the long march plan.

On the currency front, rupee remained under pressure against the greenback, shedding Rs2.06 WoW to close at Rs222.47. In addition to this, central bank reserves went down by $157 million to stand at $7.4 billion this week, compared to $7.6 billion on September 14, due to external debt repayment.

Further, Pakistan’s 5-yr credit default swaps crossed the 50 percent mark during the week (the highest level since November 2009).

During the week, the market shed 2.5 percent or 1,073 points to close at 41,140 points. Average volumes clocked in at 214 million shares (down by 6 percent WoW) while average value traded settled at $28 million (down by one percent WoW).

Foreign buying was witnessed during this week, clocking in at $0.97 million compared to a net sell of $3.4 million last week. Major buying was witnessed in technology ($1.0 million), exploration and production ($0.8 million) and oil marketing companies ($0.6 million). On the local front, selling was reported by mutual funds ($3.3 million) followed by individuals ($2.4 million).

Sector-wise positive contributions came from fertiliser (31 points), automobile parts (4.6 points) and vanaspati (0.22 points). Scrip-wise positive contributors were Engro Fertilizer (39 points), Faisal Bank (28 points), Systems Limited (53 points), Pakistan Oilfields (22 points) and MCB Bank (21 points).

Sectors that had a negative impact included cement (208 points), technology (162 points), E&P (126 points), automobile assemblers (106 points) and power (85 points). Meanwhile, scrip-wise negative contribution came from TRG (159 points), Pakistan Petroleum Limited (99 points), Lucky Cement (96 points), Millat Tractors (70 points) and Pakistan State Oil (67 points).

Analyst Nabeel Haroon at Topline Securities said that the benchmark-KSE 100 Index declined 2.54 percent on a WoW basis. “This decline can be attributed to increasing political noise following PTI chief Imran Khan’s long march announcement,” he said. “Another major event during the week was the disbursement of a $1.5 million loan to Pakistan. Investor participation remained at the lower end as average daily traded volume and value stood at 214 million shares and Rs6.2 billion respectively.”

On flows end during the outgoing week, companies, banks and other organisations purchased equities worth $1.22 million, $1.12 million and $2.14 million respectively as of Thursday’s close, whereas individuals and mutual fund net sold equities worth $2.01 million and $2.69 million respectively.

Major happenings during the week included Prime Minister Shehbaz Sharif’s visit to Saudi Arabia to attract foreign investment; signing of a $1.5 billion loan agreement with ADB; Federal Board of Revenue crossing the Rs2 trillion collection mark in four months; and services trade deficit for the first quarter declining 26 percent to $647 million year on year.