EUR 13.93 For Business Accounts Only

Stock Smart Weekly (May 27, 2022)

StockSmart                       

Weekly Review                                

Week started on a bad note with the market declining by 1.5% on the first trading day as clarity regarding the IMF and subsequently fate of the currency remained unclear. Investors remained hopeful regarding IMF’s positive nod in the meetings with the country’s officials which were due to be conclude on 25th May (Wednesday). For this reason, market remained choppy throughout the first half of the week. When the talks finally concluded with IMF making it clear that without revising petroleum and energy subsidies, they won’t be seeing through Pakistan’s reinclusion in the stalled extended fund facility. Subsequently, 26th May (Thursday) saw the finance ministry finally announcing the first of many petrol price increases, showing positive intent to reenter the IMF. MS/HSD/LKO saw PKR30/ltr increases respectively, resultantly, IMF hinted at tranche worth over $900m once the EFF restarts. Hence, by Friday, both the PKR/USD and market turned towards a positive slide. Political front remained very turbulent throughout first half of the week which saw violent clashes between Khan’s diehard supporters and the Govt’s resistance. Finally, Khan called-off the 3-day long march/sit-in and gave a 6-day ultimatum to the sitting Govt to dissolve assemblies and call fresh elections. The eventful week saw the market recovering in the second half, resulting in KSE-100 closing the week at 42,861pts, down 0.56%WoW while average volumes for the week stood at 280mn, up 27%WoW. Other important news flows during the week were, i) The current account deficit tamed down to $623 million in April 2022, ii) The Monetary Policy Committee raised rates  by 150 basis points to 13.75%, iii) Saudi Arabia’s finance minister stated that KSA is finalizing the extension of the kingdom’s $3 billion deposit to Pakistan, iv) The talks between Pakistan & IMF for the 7th review under the $6 billion EFF program remained inconclusive, v) The government announced to increase petroleum products’ prices by Rs30 per litre and vi) Pakistan and the IMF worked out the outlines for the release of over $900 million in funds that would come through once fuel subsidies are removed. Sector wise, amongst mainboards, refineries, tech and textile were amongst the top performers, up 85%/3.6%/3.2%WoW respectively. On the other hand, Close-end mutual funds were amongst the worst performers with a decline of 7.1%WoW for the week as coal prices continue their upward march. Stock wise, top performers include, i) AVN (+129.9%WoW), ii) CNERGY(+8.9%WoW), iii) LOTCHEM(+7.6%WoW), iv) ATRL (+7.4%WoW), and v) TRG(+7.3%WoW), while top laggards were, i) KTML (down 11.4%WoW), ii) ABL (down 9%WoW), iii) HGFA (down 8.9%WoW), iv) SML (down 7.4%WoW), and v) THALL (down 5.2%WoW).

 

Outlook

The news of potential revival of IMF program has already resulted in a feel good factor returning in the market. With fresh inflows likely to materialize once the IMF deal is closed, the currency may make further gains in the coming weeks. Even though there may be respite in the short term on the back of IMF’s EFF rollback, we advise out investors to remain cautious as the YoY inflation levels may hit north of 15% in the upcoming months, prompting the domestic policy rate to see an additional hike of 100bps. This may be a huge downside for the aggregate demand and subsequently the equity markets.

AKD Research