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July 8, 2018

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Stocks slump near 4pc in week as political noise triggers trade fright

Stocks staggered through yet another disastrous week, slumping near 4 percent as jitters ahead of the verdict in a corruption case against the ex-prime minister Nawaz Sharif and his daughter seized investors with trade fright, dealers said on Saturday.

Pakistan Stock Exchange’s (PSX) benchmark KSE-100 Index surrendered 1,626.76 points or 3.88 percent to political uncertainty during the outgoing week.

An analyst from Spectrum Securities said the market might remain under pressure until the election amid economic concerns over widening current account deficit, declining foreign reserves, and higher inflation, which could eventually lead to a hike in interest rate.

“Low volumes are also a concern for the market and without any positive trigger the local bourse will remain choppy and oscillating,” the analyst said adding a halt in selling by foreigners and mutual funds was likely to boost market temporarily in the short-term. However, after the announcement of the verdict, the market found a breather, marking the end of uncertainty. Oil stocks were the biggest contributors to the losses as international crude dipped and investors tried to book previously made profits. Banks, on the other hand, were able to outperform the market due on the back of high inflation numbers for June.

Average volume during the outgoing week reduced 39.2 percent to 110 million shares. Electric, Pak Elektron, and Unity Foods were the major volume leaders. The total capitalisation of All-Shares Index shrank 3.5 percent to $69.357 billion mainly due to a decline in capitalisation of banks, which went down 2.8 percent, whereas exploration and production lost 4.6 percent, and food sector fell 3.5 percent.

During the week, foreigners were net sellers of stocks valuing $8.7 million, while on the local front individuals and banks remained net buyers of equities worth $9.3 million, and $7.4 million respectively. On the other hand, mutual funds and brokers were net sellers of $18.6 million, and 1.9 million dollars respectively. As far as the economic indicators are concerned, in June 2018 inflation stood 5.2 percent, the highest in four years. The inflation rose as a result of hike in petroleum products prices and rupee devaluation against the US dollar.

The recent increase in CPI inflation is expected to make a case for a policy rate hike of around 50 basis points in upcoming monetary policy, said analyst from Spectrum Securities. Moreover, foreign exchange reserves increased to $16.385 billion from $16.243 billion, where reserves held by State Bank of Pakistan stood at $9.788 billion.

Analysts are of the view that the amount left with the central bank was not enough to meet the one-and-a-half months’ imports. They added that though there had been resistance from several blocks and the government had been borrowing from China or Chinese banks to cool off the payment pressure.

An analyst from BMA Capital Management said the verdict on Avenfield case had already heated up the political arena where the investors should keep their eyes fixed on former premier Nawaz Sharif’s line of action post verdict announcement and consequent public sentiment.

“We expect the index to remain range bound as political uncertainty is seen rising with merely three weeks to election,” the BMA analyst said.

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