Stock Review.

• Author: Kazmi, Shabbir
• Position: Pakistan Stock Exchange

Byline: Shabbir Kazmi

Under mood of pessimism index weakens further; cautiousness advised

Continuing the trend witnessed in the earlier week, the benchmark Index of Pakistan Stock Exchange (PSX) lost another 3.5%WoW to close at 33,902 points for the week ended 28th June 2019. Apart from the regulatory tightening that has been the dominant factor impacting market performance negatively other factors included: 1) fiscal year-end phenomena, where historically market remains under pressure in June, 2) exchange rate volatility taking exchange rate to new high of Rs163.5 before closing at Rs159.5 and 3) government increasing in gas tariffs up to 191%. Concerns over tail risks have overshadowed the positives including the US$3 billion commitment from Qatar in the form of deposits and FDI.

Average daily trading volume improved to 146.4 million shares from 124.8 million shares, driven by year-end repositioning particularly by mutual funds emerging as net seller to the tune of US$14.7 million. Top performers during the week included: FATIMA, EFOODS, KEL, KAPCO and INDU, while PSMC, GWLC, NBP, PAEL and PIOC remained the worst performers. Amongst the major sectors, resurgence of oil price due to the tension in Middle-East and currency depreciation failed to invigorate interest in EandPs (posting a decline of 4.97%WoW). Along with this, weak demand of cements and OMCs impacted respective sector performance (down 5.35%WoW and 5.42%WoW respectively). This was despite recovery in cement prices up to R20/bag a week ago. Commercial banks posted 2.6%WoW decline, possibly on concerns over rising NPLs, whereas fertilizers were down 2.6%WoW on gas price hike.

Market performance is likely to remain volatile in the upcoming week, taking cue from: 1) IMF Board approving US$6.6 billion EFF facility for Pakistan, 2) June 2019 inflation announcement which would indicate future course of interest rates and 3) OPEC meeting which can impact global oil price movement.

Analysts advise investors to take at least two years investment horizon and follow macro themes (interest rate, exchange rate, and circular debt resolution) in picking investments.

Total liquid foreign reserves held by the country were reported at US$14,351.3 million on 21st June, 2019. The break-up was: reserves held by the State Bank of Pakistan were US$7,282.1 million and reserves held by commercial banks amounted US$7,069.2 million. During the week under review reserves held by SBP decreased by US$322...