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MARKET REMAINS BEARISH AMID TENTATIVE POLITICAL VIEW

Political uncertainty continued to mar investors’ sentiments during the week ended 29th September 2017. The ousted Prime Minister, Nawaz Sharif returned from London to appear before Accountability Court. NAB indicted Finance Minister, Ishaq Dar that further intensified negative sentiments. The benchmark index of Pakistan Stock Exchange (PSX) witnessed erosion of 341 points and closed at 42,409 level. Average daily traded volume declined by 9%WoW to 146.3 million shares. The top volume leaders were: KEL, BOP, WTL, TRG and KOSM.

Key news flows impacting the market during the week included: 1) ECC approved payment of Rs5 billion subsidy on the export of 500,000 tons sugar, 2) ADB maintained its growth forecast for Pakistan’s economy at 5.5%YoY, but also highlighted external sector issues and rising debt risks, 3) Supreme Court dismissed appeal of National Bank of Pakistan (NBP) against Lahore High Court’s judgment on employees’ pension case, 4) ADB approved US$800 million multi-tranche financing facility for Pakistan to rehabilitate and upgrade road networks and 5) GoP total external assistance for 2MFY18 amounted to US$709 million.

Major gainers during the week included: FATIMA, KEL, POL, FFC and PTC, while major losers were: NBP, GWLC, FCCL, MLCF and LUCK. Foreign interest remained intact during the week with net inflows of US$0.52 million against net inflow of US$0.377 million a week ago. Due to substantial increase in international prices of crude oil, the local exploration and production companies remained in the limelight.

Securities and Exchange Commission of Pakistan (SECP) notified the ‘International Equity Index’ as a financial instrument for the purposes of Futures Market Act, 2016 and accorded approval for trading of US equity index futures contracts through the platform of Pakistan Mercantile Exchange (PMEX). These futures contracts would further enrich the existing product portfolio of PMES, which includes commodities such as gold, silver, crude oil, international cotton, platinum, natural gas, copper, red chilli, paddy rice, wheat, etc. Trading of international equity index futures contracts through PMEX is envisaged to create awareness among investing public about US equity indices such as Dow, NASDAQ, and S&P.

The recent hike in international oil prices has brought the index heavy weight Oil and Gas exploration sector back into limelight. Fueled by geopolitical tensions and hopes of a market rebalance, domestic E&P sector emerged as major beneficiary. Moreover, taking advantage of low cost Oil Field Services around the globe post FY14, the companies embarked upon multiple exploration programs including geological surveys, seismic data acquisition (total 2D/3D seismic data acquisition reached its peak in FY16 and drilling of wells in lesser explored areas of Balochistan and Khyber Pakhtunkhwa (KPK). A closer look at the ongoing E&P activities reveals that post- security clearance, seismic activities are underway in blocks of Balochistan and KPK by OGDC and PPL. Work overs in Adhi, Sui, Kandhkot and various other fields, appraisal and tie-in of newer discoveries in TAL block (Tolanj West, Makori Deep etc.) and plans to spud 100 wells in FY18 shall act as major volumetric triggers in the times to come.

According to the data released by NFDC for the month of August, fertilizer offtake continued to recover on the back of persistent support of subsidy package and inspiring Kharif season. According to latest figures, total fertilizer sales in August’17 rose to 1.15 million tons as compared to 842,000 tons for August’16 (up 37% YoY/55%MoM). Urea sales increased by 65%YoY/180%MoM to 948,000 tons during the month under review. Furthermore, imported urea sales increased to 65,000 tons in August’17 as compared to 46,000 tons in July’17) due to availability at significant discount to local urea prices (15% discount). As against this DAP sales registered a decline of 38%YoY/71%YoY to 83,000 tons in August’17. On a cumulative basis, total fertilizer sales posted encouraging growth of 26%YoY to 6.04 million tons during 8MCY17. Urea offtake posted a significant growth by 26%YoY to 3.99 million tons. Moreover, the recent recovery in international urea prices, up 60%, along with normalization of inventory level (urea inventory reported at 653,000 tons as compared to 1.15 million tons in August’16 indicated room available to the local manufacturers to reduce the prevailing discount offerings. Further reduction in inventory levels by exporting excess urea is likely to further improve pricing power of the local manufacturers.

In an important development, the Ministry of Defense has given a security clearance certificate for the sale of Abraaj Group’s 66.4% stake in K-Electric to Shanghai Electric Power. However, the issue of settlement of over US$ one billion dues still remains unresolved. Reportedly, both Ministry of Defense and Ministry of Interior have given the no-objection certificates for the sale of majority shares to the Chinese company. However the Ministry of Defense gave the certificate on the condition that the new buyer of K-Electric, Pakistan’s largest integrated power utility company would ensure power supplies to vital defense installations at all times. Since the Amended Implementation Agreement has also expired, the Privatization Commission has asked the Power Division to sign a new agreement to make sure that the buyer is legally bound to supply electricity to defense installations. The Privatization Commission has also asked Abraaj Group (the seller) to share the draft Sale Purchase Agreement but it has refused to meet this condition. The Power Division had asked Shanghai Power to seek security clearance from the Ministry of Defense and Ministry of Interior for the deal to be ratified. Shanghai Power is already running a nuclear plant in Pakistan.

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