The local bourse remained lackluster owing to the political uncertainty prevailing in the country. On the macro front, swelling of trade deficit also dampened the investor sentiment. On a positive note, inauguration of Kunnar-Pasakhi Gas Pipeline Project by the prime minister created some excitement for investors.
Overall, the benchmark KSE 100 Index lost 111 points to 11,014 levels, depicting a decline of 1.0 per cent WoW. Dullness in market activity can be vindicated by 33 per cent WoW drop in volumes to 28m shares. This tamed performance led to the market underperforming the regional markets by 3 per cent, however, foreigners were net buyers of US$0.2m.
Macros: Surging import bill widens the trade deficit: Outlook on the external account got bleaker with the widening of the trade deficit. In 1HFY12 Pakistan’s trade deficit stood at $11.5b, rising by 38.5 per centYoY. During the period under review, exports of the country increased by only 3.9 per centYoY to US$11.2bn, mainly due the decline in cotton prices. On the other hand, country’s import bill rose by 18.9 per cent YoY to $22.7b owing to higher oil prices. In Dec-11, exports plummeted to $1.9b, down 11.5 per cent YoY, whereas imports increased to $4.3b, up 13.6 per cent YoY. Encouragingly, remittances sent by overseas Pakistanis have amounted to $6.3b in 1HFY12 against $5.3b in the same period last year, up 19.5 per cent YoY.
Fertilizers gain on urea price hike: Both FFC and FFBL raised urea prices this week, consequently outperforming the market by 5 per cent and 4 per cent, respectively. Amongst other blue chip stocks, MCB and LUCK outperformed the market by a respective 3 per cent and 2 per cent on the back of attractive valuations.
The local bourse remains lackluster amidst growing political uncertainty, losing 133 points (-1.2% WoW). Activity was volatile during the week and negative sentiments prevailed as investors adopted a cautious stance, with Average Daily Volumes coming out at 28.3mln shares (-33% WoW). The local situation kept domestic investors at bay, thereby causing the KSE to underperform regional peers by 3% on average. The political situation of the country continues to dampen activity, in the wake of fears of an impending military coup. The tug-of-war situation between institutions (military, judiciary, and the government) is taking its toll on the functional, in turn, economic standing of the country. A primary impact of this is borne by foreign investment, which has registered a total outflow of USD 114mln since Oct 2011 to date. Furthermore, on the macro front, the widening trade deficit on the back of burgeoning oil import bill has led to substantial devaluation in the currency exchange rate. In 1HFY12 Pakistan’s trade deficit stood at USD 11.5bn, rising by 38.5%YoY. In Dec-11, exports plummeted because of declining cotton prices to USD 1.9bn, down 11.5% YoY, whereas imports increased to USD 4.3bn, up 13.6%YoY. Although, remittances during the 1HFY12 have registered a 19.5% YoY increase, the MoM trend seems to indicate deceleration in this regard.
Stock Specific Activity
Fertilizer stocks were in the limelight again. Both FFC and FFBL raised urea prices this week, consequently outperforming the market by 5% and 4%, respectively. This follows the price hike which was initiated by ENGRO last week, as the two companies had not followed suit before. However, now urea prices have again obtained uniformity across manufacturers. A point to be noted was that urea prices have come close to international parity, thereby leaving little room for additional price increases; a point which was noted by investors. This was the prime concern for underperformance of FATIMA. Furthermore, Amongst other blue chip stocks, MCB and LUCK outperformed the market by a respective 3% and 2% on the back of dividend expectations and attractive valuations. With an improving off-take situation for manufacturers bouyed by domestic demand and concurrent higher prices, LUCK and DGKC remain the top picks in the cement sector.
Forward Looking Expectations
Politics in the upper echelons of the government seem to be taking their toll on the situation of the country; the coming week is not expected to be any different. Activity is expected to remain subdued and cautious. As far as infrastructural issues are concerned, progress on the much needed Iran- Pakistan gas pipeline has come to resounding halt owing to US sanctions on Iran. The problem of gas load management continues and a short term solution does not seem to be in sight. On the company’s front, results expected to be announced in the coming days could see some stock specific plays.
