Stock Review.

Market remains choppy, budget opposition and FATF meeting may keep investors nervy

The market performance during the week ended 21st June 2019 remained choppy and the benchmark KSE-100 Index of Pakistan Stock Exchange (PSX) closed at 35,125 points, down 1.26%WoW. The week opened on a weak note, as rupee continued to depreciate. Governor, State Bank of Pakistan, Reza Baqir, held a press briefing on Monday to guide on economic outlook particularly about 1) adoption of market determined exchange rate regime and 2) continued monetary tightening. Proposals regarding power and gas tariffs hike also surfaced during the week, furthering market fears of continued pressure on macro indicators.

The news flow during the week revolved mostly around debate on budget for FY20 and economic data including: 1) Senate Committee's rejecting of Finance Bill and proposing exchange rate at Rs150 to US$ and interest rate at 12% respectively, 2) CAD narrowing by 29.3% during 11MFY19 to US$12.6 billion, 3) remittances jumping 10% during 11MFY19 to US$20 billion, 4) launching of Rs200 billion Pakistan Energy Sukuk-II by end June this year, 5) foreign exchange reserves held by the central bank falling by US$203 million to US$7.60 billion, with total reserves hovering at US$14.63 billion.

Top performers during the week included HUBC, ASTL, EFOODS, POL and OGDC, while HASCOL, NCL, KAPCO and FFBL remained the laggards. Average daily turnover declined by 8.5%WoW to 124.8 million shares, where volume leaders included MLCF, WTL, SMBL, TRG and KEL.

Pakistan succeeding to avoid blacklisting from the ongoing FATF's plenary session could extend the ongoing rally, witnessed in the last two trading sessions. PTI government with the wafer-thin majority could face challenging situation in getting budget approved particularly when opposition is making tough calls, keeping investors jittery and limiting their participation.

In the backdrop of heightening geopolitical tensions and increasing polarization on the global stage, we highlight the relatively conclusive note for the process initiated by the FATF. There was firm diplomatic commitment from member nations Malaysia, China and Turkey. The ongoing efforts by the GoP have been more proactive in addressing deficiencies. While fundamentals are expected to set in, sooner than later, a positive statement on Pakistan's efforts for meeting FATF guidelines, would reduce 'systematic risk' to the market.

The second tranche of Rs200 billion...