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STOCKS REMAIN UNDER PRESSURE ON STATE OF UNCERTAIN POLITICAL AND FINANCIAL SCENE

During the week ended 24th November 2017, the benchmark index of Pakistan Stock Exchange lost another 596 points to close at 40,248 points (down 1.5%WoW). Distressed energy chain, down on abrupt closure of furnace oil based power plants, was the key reason behind lackluster performance of bourse during the week. However, NEPRA’s announcement later during the week regarding KEL’s Multi Year Tariff hearing triggered trading spree in the scrip (up about 12%WoW). Average daily traded volume rose to over 112 million shares with volume leaders being: KEL, TRG, WTL, ANL and PAEL. Other news highlights for the week were: 1) JCC approving long-term plan of CPEC with special focus on SEZs while feasibility studies of Gwadar airport were shared with the Chinese members, 2) accountability court declaring Ishaq Dar an absconder, while the government allowed him leave of absence for an indefinite time period, 3) Pakistan current account gap widening to US$5.013 billion in 4MFY18 as against US$2.259 billion during corresponding period of last financial year, 4) Lahore High Court making regulatory duties on 731 items inapplicable till final outcome of the filed petitions and 5) Prime Minister Abbasi performing groundbreaking of Rs18 billion East Bay Expressway in Gwadar and the newly built LNG terminal.

Performance leaders during the week were: KEL, FFBL, OGDC, MCB and LUCK; while laggards included: PSO, KAPCO, ASTL, NBP and FCCL. Foreigners offloaded stocks worth US$6.28 million during the outgoing week compared to an inflow of US$1.13 million in the preceding week. OPEC and several non-OPEC nations led by Russia are scheduled to meet on 30th November 2017 in Vienna to discuss possible extension/deepening of oil production cuts. This is likely to keep Oil & Gas sector in focus.

In the recent past, PSX came under extreme pressure due to political uncertainty as well as deteriorating economic indicators. The most worrisome is persistent decline in the foreign exchange reserves of the country. During the week ended 17th November 2017, the reserves held by State Bank of Pakistan (SBP) decreased by US$137 million to US$13,541 million due to external debt and other official payments. As a result the total liquid foreign reserves held by the country declined to US$19,710.7 million.The reserves held by the SBP amounted US$ 13,541.1 million and reserves by commercial banks were reported at US$ 6,169.6 million.

The incumbent government already suffering from ‘trust deficit’ is experiencing from other two deficits namely, budget deficit and current account deficit, touching new highs. The fiscal deficit in the current fiscal year is inching towards 8.5%. It is feared that unless rigorous measures are taken to boost revenue and contain expenditure the situation could turn real precarious. The incumbent government seems to be suffering from the illusion as well as apathy. The economy doesn’t appear to be the top priority as the future of ruling party seems to be sinking deeper into uncertainty. The situation is likely to get grimmer with the departure of Ishaq Dar.

Reportedly multilateral financial institution has already refused to enter into any deliberations with Pakistan as long he remained Finance Minister. Reportedly current account deficit of Pakistan almost doubled during July-October period of the current fiscal year, provingthe failure of the incumbent government in boosting exports and remittances and containing imports. The persistent erosion in foreign exchange reserves is alarming and demand immediate remedial steps to avert a balance of payment crisis. The country has posted a whopping current account deficit of over US$5 billion during first four months of current financial year as compared to a deficit of US$2.259billion for the corresponding period a year ago.

 

In October, the current account deficit spiked to US$1.315billion, up 19.87% as compared to September. The mounting current account deficit and ongoing political turmoil pose a real risk to the economic wellbeing of the country. The party that promised to break borrowing bowl, after mopping up liquidity of the domestic banking sector, is approaching the international markets for pledging earning assets of the country. Reportedly, the incumbent government is all set to generate up to US$3 billion by issuing Eurobonds and Sukuk in international debt market. In this regard road shows have already started in United Arab of Emirates (UAE), Europe and United States. The federal cabinet in early November had given approval to borrow up to $3 billion from international debt markets by floating three sovereign bonds to sustain depleting foreign exchange reserves. The government’s plans to raise loans from the international market by issuing bonds would support the foreign exchange reserves, which are under pressure due to widening trade deficit.

One of the encouraging points is that the export of textiles and clothing, major foreign exchange earner for the country increased by 8% to US$4.39billion during first four months of the current financial years. This can be attributed to thevalue-added sector posting persistent increase. Textiles exports had fetched US$4.075billion during July-October period of the past fiscal year. Knitwear exports were reported atUS$873.023 million during the period under review, an increase of 10.62%. Export of bed-wear increased by 5.44% to US$755.419million. Along with readymade garments exports surged by 14.8% to US$803.526million, export of made-up articles hiked by 8.81% to US$222.183million. However, export towels remained almost flat at US$248.224million.

Production of petroleum products increased by 13.74% during July-September quarter of the current fiscal year as compared to the corresponding quarter of the last fiscal year. The petroleum products that contributed in positive growth included kerosene oil, posting a growth 7.61% during the period under review. The production of motor gasoline grew by 16.28%, high speed diesel by 12.43%, diesel oil by 80.47% and output of furnace oil witnessed increased by 16.64. Along with this, output of jute batching oil increased by 62.88%, solvent Naptha by 16.90%, LPG by 38.70%. The petroleum products that witnessed lower production included jet fuel, declined by 2.55% and lubricating oil down by 13.05%.

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