KSE weekly: Economic headwinds pull KSE-100 index below 47,000-mark

• The benchmark KSE-100 index closed the week at 46,957.47, down 179 points.
• The decline comes on the back of a lack of triggers, economic uncertainty and foreign selling.
• Investors remain cautious ahead of MPC announcement and MSCI decision regarding PSX.

KARACHI: High volatility persisted at the Pakistan Stock Exchange (PSX) with the benchmark KSE-100 index swinging wildly before settling with a 179-point decline at 46,957.47 during the week ended September 3.

The majority of the investors kept away from the market — their battered confidence failed to find any support as domestic politics and the economy continued to attract headlines for all the wrong reasons. All index-heavy sectors came under pressure during the outgoing week.

 A lack of triggers amid growing economic and political tensions, along with mixed corporate results and soaring foreign selling were the major causes of the index’s decline.

The week started on a positive note with the local bourse reacting to the ascent in international crude oil prices due to hurricane IDA, which helped propel the oil and gas chain, particularly exploration and production stocks on Monday.

Moreover, a host of financial results added fuel to the uptrend, especially in the power sector, which saw Hubco coming to the fore on the back of the declaration of healthy dividends.

Similar momentum was witnessed on Tuesday as the market continued to rise amid encouraging financial results. However, investors remained cautious ahead of the inflation announcement and political concerns with Pakistan Democratic Movement (PDM) planning to organise rallies across Pakistan.

The tables turned on Wednesday, as investors displayed a lack of interest amid an uncertain economic outlook. Rupee depreciation against the US dollar coupled with significant fluctuation in the international oil markets impacted the initial optimistic outlook.

A stable inflation rate — which clocked in at 8.4% in August, according to data released by the Pakistan Bureau of Statistics on Wednesday — failed to entice market participants.

Bears maintained firm control on Thursday due to a widening trade deficit — that rose 133% to reach $4.05 billion in August compared to $1.74 billion in the period last year. Panicky investors tended to follow the general trend to dump-and-run.

Fortunately, the benchmark KSE-100 index reversed the bearish trend and managed to post meagre gains on the last trading day of the outgoing week.

Much of the week was dictated by major fluctuations in commodity markets particularly the currency market where the Pakistani currency dropped to a 13-month low of Rs166.98 against the greenback during the outgoing week.

Market players were also concerned regarding a decision by Morgan Stanley Capital International (MSCI) that is to be announced next week. Earlier in June, the MSCI had proposed that the PSX be downgraded to its Frontier Markets (FM) Index in November 2021 from the Emerging Markets (EM) Index. 

Investors held their breath ahead of the Monetary Policy Committee (MPC) announcement regarding the policy rate for the next two months which is scheduled to be announced on September 20.

Foreign selling continued this week, settling at $5.9 million against a net sell of $5.4 million recorded last week. Selling was witnessed in commercial banks ($4.3 million), cement ($1.3 million) and exploration and production ($0.8 million).

On the domestic front, major buying was reported by individuals ($5.1 million) and insurance companies ($4.0 million).

During the week under review, average volumes clocked in at 462 million shares (up by 20% week-on-week), meanwhile average value traded settled at $83 million (up by 5% week-on-week).

Major gainers and losers

Sectors that performed poorly during the week included commercial banks (-301 points), cement (-100 points), automobile assembler (-77 points), textile composite (-20 points), and oil and gas marketing companies (-19 points). On the flip side, sectors which contributed positively were technology and communication (+176 points), power generation and distribution (+77 points) and refinery (+51 points).

Scrip-wise major losers were HBL (-105 points), Meezan Bank (-80 points), UBL (-63 points), MCB (-48 points) and Maple Leaf Cement (-24 points). Meanwhile, scrip-wise major gainers were Systems Limited (+141 points), Hubco (+82 points) and TRG Pakistan (+33 points).

Outlook for next week

A report from Arif Habib Limited noted that the market may show range-bound behaviour next week. “Concerns persist over how manageable the deficit on the current account may be,” it said, adding that the “IMF review may note some positive progress, especially on the back of impressive recent tax numbers for July-August (23% higher than the target).”

“Our preferred stocks are Engro Polymer and Chemical, Pakistan State Oil, Oil and Gas Development Company, Hubco, HBL, Meezan Bank, Fauji Fertiliser, Lucky Cement, ACPL, Engro Corporation, UBL, Sui Northern Gas Pipeline, and Nishat Mills,” the report said.

The brokerage house stated: “The benchmark KSE-100 index is currently trading at a PER (price-to-earnings) of 5.9x (2021) compared to the Asia Pacific regional average of 14.5x, while offering a dividend yield of 7.0% versus 2.2% offered in the region.