Good news on economy, FATF could boost stocks

A lift from optimism over prospects for better economic numbers in October could bolster stocks in the near-term as falling bond yields indicate investors are sure where to place bets.

Pakistan Stock Exchange ended the week on positive note for the second consecutive week with the benchmark KSE-100 share index touched four month high mark.

The benchmark index gained 4.37 percent or 1,442 points to 34,475 points. The closing above 34,000 points arrived after almost four months. On July 4 this year the index finished at 34,570 points. Moreover the index improved 20 percent from its recent low of 28,765 pointed attained on August 16, 2019.

The outgoing week saw substantial increase in volumes. On the last trading day of the week value traded was Rs10.5 billion – the highest in the current calendar year and was far better than 2019 average daily value of Rs4.9 billion.

“Major contributory factors in high trading activity were the ease of doing business measures taken by the SECP (Securities and Exchange Commission of Pakistan), in a market that was earlier described as over regulated,” said an analyst

“NCCPL’s regulations for margin financing were approved to enable unblocking and pledging of margin financed securities.”

Approval was granted for Murabaha share financing system to allow financing in Shariah compliant securities. Brokers can now pay interest on the subordinated loans and utilise such loans as per their requirements. “Regulatory framework for centralized KYC organization was revised to facilitate investors and bring efficiency in the process,” the analyst said.

Dealers said trading commenced on positive note during the outgoing week after Asia Pacific Group’s report on money laundering indicated that Pakistan had partially compliant on majority of the issues. That improved investors’ confidence.

“The Prime Minister Imran Khan’s successful visit to China in which they expressed satisfaction on CPEC progress further improved overall sentiment,” a dealer said.

Analysts said the bullish run in the market was due to decline in T-bill cut-off yields and increase chances of downward reversion in interest rates which boosted investors’ confidence.

“We expect market to remain positive on the back of improving external account position, country witnessing foreign net inflows in T-bills and lower inflationary reading expected in October,” said an analyst at Arif Habib Limited.

Another analyst at BMA Capital Management said recent movement in secondary market yields has been building up market expectations for an interest rate cut in the monetary policy meeting scheduled for November this year.

“Moreover, the result season is expected to kick off from next week and we expect improvement in earnings from banks, E&Ps, power, and chemicals to drive investor’s sentiments,” he added. “Results of cement, steel and auto sector along with upcoming FATF review may also play a vital role in determining the trajectory of the market.”

Contribution to the upside was led by commercial banks (492 points) and followed by oil and gas exploration companies (270 points), fertilizer (146 points), pharmaceuticals (90 points), and cement (87 points).

Scrip wise major gainers were HBL (153 points), MARI (116 points), UBL (104 points), POL (83 points), and HUBC (76 points). Whereas, scrip wise major losers were ISL (11 points), PMPK (11 points), and EFUG (8 points).