Right on the money four times in a row
Index heavyweights, namely OGDC, PPL and cement stocks in general, have completed a bull-cycle and fresh positions should not be taken until there is a considerable dip in the index
For three out of five sessions in this past week, the benchmark KSE-100 index managed to close above the 40,000 level and found it difficult to breach the strong resistance between 40,050 – 40,200 levels, as clearly mentioned in my previous article. With volumes on the lower side – averaging 115m on a daily basis as compared to 134m in the week before — a clear double top formation has cast shadows on the market.
Nevertheless, major support at 39,300 remains to be tested, breaching which might open a further downside for the market. A technical positive correction should be greeted with an exit from the market, or at least a reduction in the exposure.
The macro economic scenario, in addition to this, is becoming disconsolate with major annoyance coming from the melodrama to the build-up of yet another freedom struggle by TUQ and PTI. The only time this struggle proved positive for this country was 1940.
Reserves have stabilised between $22b and $23b and it seems likely that this digit will increase significantly by the end of 2017, given the expected inflow of funds from foreign investors
General sentiment
I had a discussion with Mr Muhammad Ali Khan, an Economics Graduate and General Manager Northern Region at AZEE Securities, pertaining to the general investor sentiment prevalent and the forecast, given a long schedule of holidays in September due to Hajj and Eid festivities.
He firmly opined that the market has completed its much anticipated and talked about target of 40,000 points and this largely became possible because of the hype that came after Pakistan’s inclusion in the MSCI emerging market. This means, he added, that the investors are generally reverting to profit taking and there is no major event which will entice buying at these levels.
Index heavyweights, namely OGDC, PPL and cement stocks in general, have completed a bull-cycle and fresh positions should not be taken until there is a considerable dip in the index.
Political build-up
The opposition is united and in full force against the government for the third time since 2013. Justice is being demanded against the infamous Panama Papers report and the PM’s team must devise a strategy sooner rather than later. Ali analysed that the pressures on this government are increasing and they have no other option to counter this move other than winning over the masses by providing relief to them.
The much acclaimed COAS is retiring in November and October does not bring good memories for the reigning government. They will want to make this transition as smooth as possible.
The market in general and Pakistan in particular cannot afford any hiccups at this point in time, given CPEC’s development in full force, positive sentiment of foreign as well as local investors and the tag of best performing market of South Asia at stake.
Oil prices déjà vu: likely to test $40 again
Oil futures are nearing the highs of 2016 on the strong news that Saudi Arabia is likely to impose production caps when OPEC members meet in September on the sidelines of an energy conference in Algeria. However, the oil producing giant is likely not to get into any such agreement. History, at least, does not support this proposition of production caps being imposed. The prices, hence, are likely to return and that too sharply.
On the local front, the government has hinted at prices falling by Rs4.5/liter to approximately Rs60/liter. This is likely to bring CPI numbers down for the month of September.
Discount rate likely to remain constant, foreign reserves rise w-o-w
The SBP is likely to keep the benchmark discount rate at the same level, largely because the potential threat of rising inflation will be countered by a likely fall in oil prices next month.
Foreign exchange reserves held by the State Bank of Pakistan (SBP) increased 0.31pc on a weekly basis on August 12, according to data released by the central bank on Thursday.
SBP’s liquid foreign exchange reserves increased $55mn to $17,719m compared to $17,664m in the previous week.
Total liquid foreign reserves held by the country, including net reserves held by banks other than the SBP, stood at $22,623.2m while net reserves held by banks amounted to $4,903.6m.
Reserves have stabilised between $22b and $23b and it seems likely that this digit will increase significantly by the end of 2017, given the expected inflow of funds from foreign investors.
Stocks to look forward to in the long-run
Mr Muhammad Ali Khan, from his vigilant eye on the market movements and predicting future growth in earnings, recommends the following scrips with a long-term view for investors
- Oil Sector: OGDC, PPL, PSO
- Steel: INIL, ASTL, ISL
- Cement: THCCL
- Engineering: PAEL
- General Industries: TREET
- Banking Sector: UBL, NBP, AKBL
