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Friday March 29, 2024

Stocks slump 4.3pc this week amid economic, political uncertainty

By Danyal Haris
October 07, 2018

Market declined 4.3 percent this week, falling in all five trading sessions to close below the 40,000 level for the first time in 58 trading sessions on political noise and economic uncertainty, dealers said.

An analyst from BMA Capital Management urged investors to remain watchful for developments on the political front, as ripples from the arrest of former chief minister of Punjab Shahbaz Sharif were expected to impact the upcoming week.

Although the government policies have been welcomed by the IMF, the need to ‘do more’ would cloud the outlook on macroeconomic growth as concerns on stabilisation take centre stage, the analyst said. Nevertheless, steep 6.4 percent correction from the start of fiscal year to date has opened up valuations and the market trades at a P/E of 7.7x compared to regional P/E of 13.9x, reflecting a 45 percent discount that has opened up valuations, he added. “We continue to favour defensive, devaluation friendly/hedged, interest rate leveraged and quality names.”

Driven by economic concerns, benchmark KSE-100 shares index fell 4.3 percent or 1,772 points to 39,226 points – the lowest level since December 21, 2017 owing to depleting foreign exchange reserves and economic risks highlighted by the IMF.

The final blow to the activities landed when Leader of the Opposition Shahbaz Sharif was arrested, plunging equities further down during the last day of the week.

Foreign investors continued to exert pressure on the market as they sold shares worth $8.4 million during the week. On domestic front, mutual funds recorded net selling of $4.8 million.

An analyst from Topline Securities said the negative sentiment was a result of both economic and political concerns. Approval of mini-budget from National Assembly (Lower House) with continuity of ban on non-tax filers from buying motor vehicles pulled down auto stocks. This led to negative sentiments in the automobiles sector, causing it to close down 7.48 percent on weekly basis. Individually, the automobile scrips turned out among the major losers after Honda Atlas, Indus Motors and Pak Suzuki all closed 12.35 percent, 12.21 percent, and 8.87 percent lower, respectively.

IMF staff meetings concluded during the week where its Mission Chief Harald FInger acknowledged greater economic risks to the economy owing to high twin deficits together with low forex reserves.

Though he welcomed policy measures aimed at fiscal and monetary tightening, he recommended further policy actions, including arrangement of significant external financing, more flexibility in exchange rate, monetary policy tightening, fiscal adjustments, and further increase in gas and power tariffs.

Pakistan has yet to take a decision over fresh IMF program. It was expected to finalise it by mid-October, as it was trying to secure funding from Saudi Arabia and United Arab Emirates.

On the macro front, in a largely expected move, the central bank raised the policy rate by 100bps taking it to 8.5 percent. Furthermore, the visit of the Saudi delegation proved uneventful as it failed to materialise into anything that could ease off pressure on Pakistan’s balance of payments position (loan/aid/grant and/or soft oil import payment plan).