Pakistan Economy: Macro-imbalances necessitate 100bps hike
- Mounting inflationary pressures as evident from rising core inflation (close to 4-yr high of 8.35%) coupled with elevated macro-imbalances should push the SBP to raise policy rate by another 100bps in the upcoming MPC meeting (tomorrow, 30th Nov), in our view. This would mark the fifth rate hike in CY18, with cumulative increase in policy rate by 375bps.
- Even though recent commodity price softness (particularly in energy) has favorable repercussions at home, we continue to see the central bank aggressively raising its policy rate, with a view to reigning in aggregate demand. In this regard, we expect a further 200bps rate hike in CY19.
- For Nov'18, we forecast headline inflation to clock in at 6.86%YoY compared to 6.78%YoY in Oct'18 and 3.96%YoY in Nov'17. Higher fuel prices moving transport index by 4.1%MoM and increase in tobacco prices (+2.5%MoM) are the key driving factors, pushing monthly inflation higher. Sequentially, CPI index is likely to move up 0.44%MoM.
- Core inflation – which strips out volatile factors like energy and food prices – continues to gain strength with Nov'18 reading expected to reach a 4-yr high of 8.35%YoY, signifying sustained supply side pressures on inflation.
- While market participants have largely priced in consensus estimate of 100bps rate hike, we believe any deviation from the expectations could trigger market performance accordingly. That said, given continued economic uncertainties, recommend defensive exposure, where preferred plays include Banks (MCB & ABL), select Power (HUBC),
- Fertilizers (EFERT) and Autos (INDU).
AKD Research
AKD Securities Ltd. is one of the leading securities firm in Pakistan, providing a comprehensive range of investor focused services, including equity brokerage, economic and securities research, investment banking and financial advisory services. AKD Securities accounts for more than 6% of the average daily value of the Karachi Stock Exchange. AKD Securities was the first brokerage house to launch an online trading platform in Pakistan in November 2002 and now has the largest market share with over 6000 customers. This has helped diversify and expand the retail investor base in the country and ushered in a whole new universe of investors to the stock market.
AKD Securities Ltd. caters to a diversified group of domestic and international institutional investors, high net worth individuals and upscale retail clients, including expatriate Pakistanis. With high quality research, unparalleled execution and distribution capability for both regular and large block trades, AKD Securities Ltd. has earned an outstanding reputation in the Pakistani securities industry.Outside of commercial banks, AKD Securities Ltd. is one of the biggest capital market firms in the country. AKD Securities is the leader in raising and providing risk capital in underwriting, market making and mergers and acquisitions in Pakistan. Good corporate governance and professionalism are emphasized throughout the firm and AKD Securities Ltd. is amongst the very few companies to have introduced a firm-wide comprehensive CODE of ETHICS, overseen by an independent compliance manager.Ultimately, our success is based on the quality of service we provide to our customers and the trust and confidence reposed in us by them. Our focus, therefore, remains on customer satisfaction at all levels in the company.
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