KARACHI – The recent earthquake and tsunami has, whereas, shaken the high-tech Japanese economy, analysts view the natural calamity as a blessing in disguise for the crises-hit economy of Pakistan. However, analysts say Pakistan’s stock market, like most of its Asian competitors that tumbled from one to three percent on Tuesday, might not remain unaffected from the devastating tsunami in Japan.
In aftermath of the Japanese disaster, analysts see the flaring commodity prices in international market coming down in anticipation of a falling demand from the world’s third largest energy consumer. “The reduction in commodity prices could act as a blessing for external accounts balance besides easing inflationary pressures,” viewed Nauman Khan of Topline Securities.
It must be recalled that the hike in global prices of cotton and rice had partly helped the cash-stripped Pakistan achieve a $26 million current account surplus during first half of the current fiscal year. The six-month surplus, however, fell back into a deficit of $81 million only after a month, during July-January FY 2010-11, primarily due to a rise in imports and poor dollar-inflows in the country.
Analysts believe that, while the natural disaster had shaken the investors’ confidence globally putting all global leading equity markets in red, its impact on various listed sectors of Pakistan would range from neutral to positive. “We expect no major impact on Pakistan’s economy,” Khan said. The analysts said though, energy was a pass through time for the Independent Power Producing Companies (IPPs), but an expected reduction in international oil prices would ease the country’s lingering circular debts.
Pakistan would, however, remain wary of the recent crisis when it comes to equity market – which the analysts believe were likely to face the brunt on the back of shaky investors’ confidence. “Global investors have started to worry – all global leading equity markets are in red with Asian markets down one to three percent, with Japanese markets tumbling by more than 10 percent,” Khan said.
He said that the benchmark KSE-100 index remained under pressure on Tuesday amid fears of foreign selling. The analysts said that positive developments, like reports of a possible patch-up between the PPP and MQM, could not offset the impact of Japanese calamity on Karachi Stock Exchange, where net portfolio investment valued at minus $231.20 million.
“Bearish activity was seen in scrips across the board as global markets fall on the investors’ fear for impact of the Japanese disaster on the global economy,” said Arif Habib Investments Director Ahsan Mehanti. Affect on other listed sectors, the analysts said, would range from neutral to negative. It’s pricing being linked with international oil prices, there would be a direct impact of lower prices on the country’s Exploration and Production (E&P) companies, analysts said.
“While refineries’ earnings could decline due to a reduction in deemed duty in absolute terms,” Khan maintained. He said that, since oil marketing companies’ (OMCs) margins were fixed on regulated products (except for de-regulated furnace oil), the impact would be neutral. “However, current oil prices are already above our oil assumption of $85 per barrel – therefore easing of oil prices poses no downward revision in our estimates,” he said.
Impact on cements would also remain negative to neutral as coal prices had started to gain strength as Japan, the third largest nuclear energy consumer, was expected to use coal as an alternative for power generation. “This would dampen cement sector primary margins,” Khan viewed – adding for some companies, the impact would be mitigated by future coal contracts. Auto sector, the analysts believe, would see a negative impact as a strengthening Japanese Yen would put auto assemblers’ margins under pressure.
“Furthermore, uncertainty with respect to steel prices would be another major risk for these companies. Plant closure risk is also prevalent, however, it is too early to estimate whether there will be any delay in importing the CKD kits,” the Topline official said. Regarding the chemical sector, Khan believed that sample companies like LOTPTA would undergo a neutral impact as lower paraxylene prices (which follow oil prices) would be negated by an expected decline in PTA prices (raw material for PSF).
“This is on account of reduction in cotton prices which would compel consumers to use cotton instead of costly PSF,” Khan opined. “We expect, Pakistan to be fairly protected from the recent crisis,” he concluded.
