Stocks not out of the woods; low leverage bets in focus

Stocks are likely to move easy during the next week after pricing in rate hike and investors might keep exposure limited to low leverage stocks for safe returns amid economic uncertainties, dealers said.

Brokerage Habib Metro said the market may show a mixed trend during the upcoming sessions.

“We advise investors to stay cautious and limit their exposure to stocks that offer a currency hedge and do not carry high leverage,” the brokerage added.

Continuous foreign selling that stood at an aggregate $51 million, together with a score of financial developments, kept investors on the sidelines during the outgoing week.

Topline Research said in November foreign selling stood at $100 million, which was the highest in 18 months. “It was also the 10th consecutive month of foreign selling.”

The KSE-100 index of Pakistan Stock Exchange fell 0.9 percent or 373 points to close at 40,496 points during the outgoing week.

Average daily transactions declined by 3.1 million to 152 million shares on week-on-week basis.

Most of the foreign selling was concentrated in banks ($21.5 million) and cements ($21.1 million).

Brokerage BMA Capital Management said nearly 64 percent of foreign selling happened on the last day due to deadline of the Morgan Stanley Capital International (MSCI) rebalancing.

Global index provider MSCI last month announced the decision of its semi-annual review in which it demoted United Bank (UBL) and Lucky Cement (Luck) from MSCI Global Standard Index, while it removed Maple Leaf Cement and Honda Atlas from Small Cap Index. All changes were effective from November 30.

Topline Research said foreign investors were to re-balance their portfolios in accordance with Luck and UBL being removed.

Analysts said equities remained volatile during the outgoing week due to rupee tumbling to an all-time low against the US dollar.

During the week, Brent crude declined on the back of higher than expected US inventories.

As a result, exploration and production stocks were down during most part of the week but recovered on Friday after the latest round of rupee depreciation.

Oil and Gas Development Company, Pakistan Petroleum, Mari Petroleum and Pakistan Oilfields returned 2.6 percent, 3.4 percent, 3.6 percent and 1.1 percent, respectively while the sector was up 2.8 percent.

Insurance and mutual funds also provided liquidity to the market.

BMA Capital Management said a key event to watch out for next week is the meeting of the Organization of the Petroleum Exporting Countries (OPEC) and like-minded non-OPEC members where a production cut is expected in order to stabilise the oil market.

That may translate into higher international oil prices and trigger a rally in the exploration and production sector.

The securities company said another key development at the end of the last trading day was the announcement of unexpected policy rate hike by the central bank.

“It is expected to trigger investors’ interest in banking scrips in the upcoming week while leveraged names may face pressure,” the brokerage said.