PSE closes in green after successful economic diplomacy engagement.

Byline: Shabbir Kazmi

The benchmark index of Pakistan Stock Exchange (PSX) posted 1.6%MoM gain during October 2018 and closed at nearly 41,650 points, after posting decline for two consecutive months. This reversal, though of a smaller magnitude can be attributed to the successful diplomacy of Prime Minister, Imran Khan in Saudi Arabia that resulted in Saudis approving US$6billion package and expectation of packages from China and United Arab Emirates (UAE). During near term performance will depend on actual transfer of funds, and signing of a package with International Monetary Fund (IMF). Though, prospects of Pakistan's entry into an IMF program are bright, imposition of some stringent conditions can't be rules out. Foreigners remained net seller, liquidating more than US$86 million worth of equities. Despite disappointing results, Cements and Commercial Banks fueled buying at cheaper valuation. Oil and Gas and Automobile sector witnessed some decline amid lower oil prices and concerns over margin erosion respectively.

Pakistan's Benchmark 100 Index performance can also be termed a tale of two halves. The month open on a bearish note due to: 1) macroeconomic uncertainties, with external agencies highlighting potential risks, and 2) NAB inquiries against top leadership of mainstream political parties, weighed on investor sentiments. The second half was almost the opposite with Index ascending from a low on the back of US$6billion package from Saudi Arabia and with the expectations of another package from China that would pull the country out of would position the country to avert inevitable balance of payment crisis.

The market was flushed with liquidity with average daily turnover rising to 293 million shares, with daily traded volume valued at US$59.1million as compared to that of US$43.6million in September 2018. Market activity was also skewed towards blue chip stocks. Foreigners continued to be the net sellers following EM market sell-off with major outflow recorded in banks (US$44.2mn, the 6th consecutive month of selling). The selling was primarily absorbed by Companies (US$33.2million), Mutual funds (US$20.6million) and stock brokers (US$6.15million, net buyers after six months).

The recovery in the market's overall performance was led by Cements and Commercial banks, despite disappointing earnings. Investors' interest was fueled by cheaper valuation. Rupee depreciation of 7.5 percent during October 2018 made it the worst...