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Moody’s Negative Outlook Push Kse-100 Index Down 4.7pc WOW
Summary

First week after Eid holidays was a short one of 4 sessions with KSE-100 Index shedding 2,043 points to bring down the Index to 41,000 level to close on Friday at 41,637.38. The volume, however, average higher to 170m but the market capitalization decreased to Rs8.539 trillion.

A number of factors weighed on heavy drop of Index. Foremost was the statement of Moody’s Investors Service statement on Wednesday to change the outlook to negative was driven by heightened external vulnerability risk as on-going balance of payment pressure erode foreign exchange buffers. Rating of B3 reaffirmed for local and foreign currency debt, rupee weakening and new regulations to satisfy FATF recommendations and continuous selling by foreigners push down worth $24.53m of trading during the week.

The market opened on Tuesday after Eid holidays with lackluster performance. The market moved on a narrow margin and finally closes flat with gain of 2.16 points at 43,682.84. The meeting by caretaker Finance Minister with brokers on Monday put some positivity in the market about the Amnesty scheme.

The market on Wednesday showed concern over upcoming FATF decision on Pakistan. Financial Action Task Force (FATF) put recommendations to comply to Pakistan. The market shed 680.00 points to close at 43,002.84 points. The investors were worried about pressure in international oil prices and continuous selling by foreigners.

The news of Moody’s downgrading Pakistan’s rating outlook to negative brought Index down 644 points on Thursday to close at 42,356.61 points. The foreigner sold $11.47m of shares. In the last two sessions, growing number of repo transactions have been reported, which increase the volume but do not affects the rates significantly.

On the last day of trading on Friday stock lost another 721 points to close at 41,637.38. The sectors that drag the market down included E&P (151 points), banks (148 points ), cement (77 points), fertilizer (68 points).

 

Participants/Activity

On average shares of 340 companies were traded. Of these 88 were gainers and 231 were losers and 21 remained unchanged.

Foreigners were net seller $24.53m during the week; companies were buyer by $14.6m, Banks were buyer $1.44m; Mutual fund net seller $9.02m and individuals net seller $5.63m.

Volume leaders during the week were: K-Electric Ltd 74m; Power Cement 40m; TRG Pak Ltd 35m; Summit Bank 31m; Pak Elektron & Lotte Chemical 20m each; Bank of Punjab & Pak Int’l Bulk XP 16m each, Engro Fertilizer 5m and Unity Foods Ltd 4m.

Triggers
  • Current account deficit rises to $16 billion in the first 11 months of this fiscal year.
  • FBR chief urges business to avail amnesty scheme. To legalize undeclared assets.
  • Reserve rise by $198m during the week ended on June 14 to $10.264 billion making the total reserves of the country as $16.798 billion.
  • Textile exports rose 28% YoY during the month of May 2018.
  • Moody expects the government tax amnesty scheme — due to expire on June 30 — to have a modest impact of around $2-3 billion in foreign exchange inflows.
Conclusion

Technically the Index has dropped below the 200-DMA indicating potential for further downside. The next target is 41,458 then to 40,360. The upside is 42,619.

Interesting to follow the outcome of the impact of Amnesty scheme expiring on June 30, on PSX.

Raees Uddin Khan,
Research & Development, Institute of Securities Management Research & Training (Pvt) Ltd, Karachi.
Dated: June 15, 2018

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