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September 22, 2019

Stocks may extend rally as rate snaps tightening trend


September 22, 2019

KARACHI: Stocks are likely to keep up an upward momentum next week as a break in monetary tightening would funnel funds back to equities, dealers said.

The dealers, however, said futures rollover could take the steam out of blue-chips.

“With the latest PIB (Pakistan Investment Bonds) auction showing a decline in yields the market believes interest rates have topped out,” brokerage Habib Metro Financial Services said in a report.

BMA Capital Management said commencement of futures rollover week might exert pressure on the market going forward.

The capital market closed on positive note for the third consecutive week after the central bank kept interest rate unchanged and lowered the cut-off yield on long-term bonds.

The Pakistan Stock Exchange’s benchmark KSE-100 shares Index surged two percent or 630 points. Overall, the index closed the week at 32,111 points.

Activity remained slightly lower compared to the last week with a daily average of 123 million shares compared with 129 million shares traded daily last week. Average value was down 13 percent week-on-week to $33 million.

“With major macroeconomic concerns likely to be addressed to a larger extent, we expect market volumes to pick up going forward,” BMA Capital Management said in a report.

Foreign buying clocked in at $7.75 million compared to net buying of $1.01 million last week. Buying was witnessed in commercial banks ($3.6 million) and cement ($2 million). On the domestic front, major selling was reported by insurance companies ($9 million) and mutual funds ($6.8 million), while individuals remained net buyers of $6.72 million.

The State Bank of Pakistan maintained the policy rate at 13.25 percent for the next two months. The US Fed and European Central Bank chose to slash interest rates. The International Monetary Fund mission said reforms are off to good start under its $6 billion loan program.

“We expect the positive momentum to continue next week on the back of improving macroeconomic situation,” Arif Habib Limited said. “Reduction in PIB yields has once again made equities an attractive asset class and with valuations at dirt cheap levels, we can expect the inflection in sentiment to continue.”

The brokerage further said the rejuvenation of foreign interest in the market is also a major factor that should continue to fuel the positivity.

Local exploration and production sector climbed 4.37 percent week-on-week as international oil prices ballooned after an attack on Saudi Aramco’s oil facilities dragged down half – or 5.7 million barrels per day – of its production. This led West Texas Intermediate and Brent to reach a high of $62.90 and $69.02 per barrel, respectively before settling at $58.73 and $64.72 per barrel by the week-end.

Oil and gas exploration companies contributed 204 points towards the increase in the index, followed by commercial banks (147 points), fertilisers (98 points), oil and gas marketing companies (89 points), and pharmaceuticals (56 points).

Scrip-wise positive contributions were led by Pakistan Petroleum Limited (99 points), HBL (77 points), UBL (72 points), Oil and Gas Development Company (63 points) and Engro (57 points).

Habib Metro Financial Services said the market’s recent rally could feel shocks during next week, with the prime ministers of Pakistan and India expected to address the United Nations General Assembly.

BMA Capital said notable developments for the upcoming week are likely to be Prime Minister Imran Khan’s scheduled meeting with the US President Donald Trump in America that might play a vital role in Kashmir issue and Financial Action Task Force’s decision on Pakistan in October.