PSX review: Economic headwinds push KSE-100 index down by 2%

• A tumultuous week at PSX ends with an 881-point slump on the back of an all-time high trade deficit.
• Stocks take heavy battering following a record high inflation and news of an alarmingly high import bill.
  
• Foreign selling continues this week, clocking in at $62.8 million.

KARACHI: A tumultuous week at the Pakistan Stock Exchange (PSX) ended with an 881-point slump to settle at 43,232.83 points on the back of an all-time high trade deficit, fuelling fear of the severe impact on the economy.

Stocks took a heavy battering following news of an alarmingly high import bill at $8 billion for November 2021 and a significant increase in the cut-off yields (an increment of 228bps) for three-month treasury bills in the recent auction due to a higher than expected inflation reading of 11.5% for November 2021.

Moreover, depreciation of the Pakistani currency — that lost around 1% during the week — against the US dollar coupled with news of the emergence of a new COVID-19 variant, Omicron kept the investment climate gloomy during the week.

On Monday, bullish activity dominated trading as widespread uncertainty, which enveloped the market regarding the International Monetary Fund (IMF) programme and $3 billion funds from Saudi Arabia, vanished gradually and a clear picture emerged.

The movement of the benchmark KSE-100 index displayed a much stable upward march on the first day of the trading week, which reflected the confidence gained by investors after Adviser to Prime Minister on Finance and Revenue Shaukat Tarin visited the stock market last week.

However, the momentum was short-lived as the benchmark KSE-100 index closed the last trading day of November on a negative note on the back of Morgan Stanley Capital International’s (MSCI) rebalancing. Investor mood remained sombre ahead of MSCI’s reclassification on December 1.

The investors’ sentiment at the bourse remained mixed on Wednesday — the first day of the reclassification of the stock market from the MSCI Emerging Market Index to the MSCI Frontier Market index — due to MSCI related trade and record-high inflation.

Unfortunately, the following session was marked as “Black Thursday”, after the PSX saw a massive sell-off with more than 2,100 points wiped off the benchmark KSE-100 index.

The sell-off on Thursday marked the largest single-day decline in a day's worth of trading at the PSX during the 2021 calendar year and the third largest in history.

The market closed the week on a flat note with a loss of one point as expectation of another massive hike in the benchmark policy rate by the State Bank of Pakistan (SBP), in its meeting scheduled on December 14, forced investors to trade cautiously.

Other major developments during the week were: forex reserves down $275 million, cut-off yields on T-bills increased by up to 229 basis points, circular debt rose by Rs35 billion per month, Economic Coordination Committee (ECC) grants increases in oil marketing companies, petrol dealers’ margin and oil sales jump 17.6% in July-November.

Foreign selling continued this week, clocking in at $62.8 million against a net sell of $25 million recorded last week. Selling was witnessed in commercial banks ($27.2 million) and cement ($14.8 million).

On the domestic front, major buying was reported by companies ($25.7 million) and individuals ($16 million).

During the week under review, average volumes clocked in at 319 million shares (up by 21% week-on-week), while average value traded settled at $90 million (up by 51% week-on-week).

Major gainers and losers of the week

Sector-wise negative contributions came from technology and communication (-198 points), cement (-165 points), oil and gas exploration companies (-101 points), textile composites (-68 points), and food and personal care (-67 points). On the flip side, positive contributions came from banks (+59 points) and oil and gas marketing companies (+20 points).

Scrip-wise major losers were Lucky Cement (-124 points), TRG Pakistan (-107 points), Systems Limited (-65 points), Mari Petroleum (-62 points) and Pakistan Oilfields (-44 points). Meanwhile, major gainers were HBL (+67 points), Pakistan State Oil (+52 points) and UBL (+40 points).

Outlook for next week

A report from AHL predicted: “With the Saudi funds expected to arrive anytime soon, the market can rebound and the Pakistani currency slide will be contained.”

“Keeping in view macro-economic concerns, investors are expected to have a cautious approach. However, we expect the market to be range-bound in the upcoming week,” it said.

“The KSE-100 is currently trading at a PER of 4.6x (2022) compared to Asia-Pacific regional average of 14.7x while offering a dividend yield of 8.8% versus 2.2% offered by the region,” the brokerage house stated.