CAPITAL MARKETS

 

1- FOREX KERB WATCH

2- CFS WEEKLY REVIEW

3- FINEX WEEK

4. STOCK WATCH
5. STOCK MARKET AT A GLANCE
6. PAKISTAN WEEKLY REVIEW

7- SAUDI STOCK MARKET INDICATING GROWTH PROSPECTS

 

PAKISTAN WEEKLY REVIEW

 

AlFalah Securities (Pvt) Ltd.
Monday, Sep 12, 2005-Friday, Sep 16, 2005

 

BOARD MEETINGS

COMPANY

DATE

DAY

TO CONSIDER

Maple Leaf Cement Factory Limited

15.09.05

Thu

Annual Accounts for the year ended June 30, 2005.

Dadabhoy Cement Industries Limited

16.09.05

Fri

Audited Annual Accounts for the period June 30, 2005 and to increase Authorised Capital of the Company from Six Hundred million to One Billion ordinary shares of Rs. 10/- each.

Indus Motor Company Ltd

16.09.05

Fri

Annual Accounts for the year ended June 30, 2005.

Jahangir Siddiqui & Co. Ltd.

17.09.05

Sat

Annual Accounts for the year ended June 30, 2005.

Jahangir Siddiqui Investment Bank Limited

17.09.05

Sat

Annual Accounts for the year ended June 30, 2005 and declaration of any entitlement.

Maple Leaf Cement Factory Limited

17.09.05
(Revised)

Sat

Annual Accounts for the year ended June 30, 2005.

Oil & Gas Development Co.

19.09.05

Mon

Annual Accounts for the year ended June 30, 2005 and for declaration of entitlement, if any.

Security Leasing Corp. Ltd.

19.09.05
(Revised)

Mon

Annual Accounts for the year ended June 30, 2005.

D. G Khan Cement Co. Ltd.

19.09.05

Mon

Annual Audited Accounts for the year ended June 30, 2005.

Nishat Mills Limited

19.09.05

Mon

Audited Accounts for the nine months ended June 30, 2005 (close of financial period).

Javedan Cement Limited

22.09.05

Thu

Annual Accounts for the year ended June 30, 2005.

Askari Leasing Limited

27.09.05

Tue

Yearly Accounts for the period ended June 30, 2005.

Sui Northern Gas Pipelines

30.09.05

Wed

Annual Accounts for the year ended June 30, 2005.

Fauji Fertilikzer Bin Qasim Limited

20.10.05

Thu

Quarterly Accounts (July September 2005).

"The happiness of those who want to be popular depends on others; the happiness of those who seek pleasure fluctuates with moods outside their control; but the happiness of the wise grows out of their own free acts." - Marcus Aurelius

WHO'S THE DADDY? THE MARKET OR YOURSELF...

Humans, the cognitive misers we are, tend to relinquish their own mental faculties swapping them for the heresy of the market in search for windfall gains. The outcome on the other hand, barring a few, is quite the opposite. Most of the time, the market is mostly accurate in pricing most stocks. Thousands of buyers and sellers haggling over price do a remarkably good job of valuing companies. But sometimes, the price is not right; but very wrong indeed. It is at such times that we need to understand the wisdom of Benjamin Graham - the father of value investments - in not getting seduced by the market euphoria and overlooking the fundamental values of the stocks.

The market, described as manic-depressive in nature by Graham, does not always price stocks the way an analyst or a private buyer would value a business (the March madness being a perfect example). Instead, when stocks are going up, the market happily pays more than their objective value; and, when they are going down, the same market is desperate to dump them for less than their true worth.

YOUR MONEY AND YOUR BRAIN

Why, then, do investors find the market so seductive? It turns out that our brains are hardwired to get us into investing trouble; humans are pattern-seeking animals. Thus, if a stock goes up a few times in a row (upper-circuit breaker galore), the investor reflexively expects it to keep going, resulting in a natural high if the stock rises. It effectively becomes a self-fulfilling prophecy and the investor getting addicted to his own predictions. In case of a financial loss the exact opposite is true, the investor is overtaken by a bout of fear and anxiety rendering his decision-making abilities useless.

A study undertaken by psychologists Daniel Kahneman and Amos Tversky show that the pain of financial loss is more than twice as intense as the pleasure of an equivalent gain. Making $1000 on a stock feels great, but a $1000 loss kick starts an emotional ordeal that is more twice as powerful. Losing money is so painful that many people, terrified at the prospect of any further loss, sell out near the bottom or refuse to buy more. This behavior leaves the prudent strategy of buying in bearish spells and cashing on them in bullish ones completely in tatters.

KNOW THE VALUE NOT THE PRICE

For a shrewd investor the investment horizon is of utmost importance. If the horizon is long-term the market's daily dipsy-doodling simply should not be a case of any concern. In case of an investor who will be investing for years to come, falling stock prices are good news, not bad, since they enable the investor to buy for less money. The longer and further stocks fall, and the more steadily one keeps buying as they drop, more money will be made by the investor in the end - given one is steadfast with this strategy till the end. Instead of fearing a bear market the investor should embrace it with open arms. The idea here is to know the value of the stock and not its price.

As Oscar Wilde would put it "a cynic is one who knows the price of everything, but the value of nothing".

THE DAYS OF CHEAP CREDIT ARE OVER- BUT WILL INFLATION COME DOWN?

Most analysts were predicting a 10-15 basis points rise in last weeks T-bill auction. Contrary to popular expectations, the SBP kept T-bill cut-off rates unchanged. One reason for that could be that inflation figures for the month for August have come down to 8.41% YoY. Much of this decrease, however, can be attributed to the base effect. Inflation still remains above the target of 8%. The more plausible reason for keeping T-bill yields unchanged is that the central bank realizes that raising interest rates in Pakistan's present context might be of limited use in controlling inflation rates. Of course, a more meaningful discussion regarding the interest rate path can only be made after the PIB auctions.

OIL FROTH, HOUSING BUBBLE AND RAMADAN:

There are three main drivers of inflation at present; food prices, oil prices, and house rent. Oil and food supplies are supply-side factors while house rent constitutes more of a demand-side pressure. Pakistan's inflationary spike can be attributed to all three of these factors. World oil prices are at a record high. Food shortages have been continuing from last year. And the housing bubble continues largely unabated. It is for these reasons that both headline and core inflation have moved up together.

RAISING INTEREST RATES IS NOT ENOUGH

By raising interest rates, the government is only targeting the demand side inflationary pressures. In this regard, the SBP can claim to have achieved some success. Total bank advances for the period July-Aug were up by Pkr 9 bn, a 66.67% decline from the PkR 27 billion expansion in the same period last year. The supply side pressures are, however, exogenous st rates further, it risks dampening growth prospects of the economy while not being able to curtail inflation significantly either. For his part, Ishrat Hussain has sounded a clear warning that the days of cheap credit are over and further tightening of monetary policy shall ensue. Unfortunately for us, the days of cheap food and oil are over too (atleast for the time being).

No upward revision in the cut-off yield indicates that the government realizes that a three-pronged approach is required to tackle inflation successfully. The talk of a five-day week to reduce oil intensity is in that vein. Now that would be a popular strategy to tackle inflation!!

Although the KSE index breached the long awaited 8000 level barrier on numerous occasions this week, it failed to close above it, signaling a cautious approach by the investors. The index closed at 7934 on Friday, up 0.56% from last week. Average volumes traded over the week increased from 347 mn to 351mn shares but average weekly turnover of USD 475 mn remained low compared to USD 612.2 mn last week.

With the introduction of pre-trade verification system this week, the average weekly traded value declined from last week. However, volumes in small value stocks remained on the higher side such as Dewan Salman Fibre, Bosicor Pakistan, Maple Leaf Cement and Pakistan PTA.

Mixed sentiments amid low volumes were witnessed on Monday as the index fell 0.04% with the week's lowest turnover of USD 339 mn. Cement sector performed well on the back of higher production figures from last month, with DGKC and FCCL closing up 3.5% and 3.1% respectively. DGKC was the volume leader with a 26% contribution to the total volumes. Some profit taking was observed in NBP, closing down 1.1% at PkR 124.75.

Tuesday saw the index recovering but still failing to close above the 7900 level. POL witnessed selling pressure on the back of its below-than-expected result announcement, closing down 3.3% at PkR 340.60. Handsome shares changed hands in Dewan Salman Fibre, unexpectedly the day's volume leader with a share of 15%, to close up 4.9% at PkR 17.15. NML continued to invite fresh buying, closing up 4.7% at PkR 94.75.

Volumes improved by 21.7% on Wednesday with the index moving up 0.8% to finally breach the 7900 barrier. Apart from PTC (closing down 0.8% at PkR 64.90), all other major scrips closed in the positive zones. POL regained what it lost a day earlier, closing up 3.6% at PkR 352.85. Fertilizer sector performed well with ENGRO and FFC closing up 5% and 2.2% respectively. Refinery sector maintained its upward trend with ATRL and PRL closing up 5% and 1.3% respectively. DGKC was the volume leader, closing up 2.4% on the back of good result expectations (BoD Sep 19).

Market started well on Thursday, opening the index above 8000 level with widespread buying interest in Fertilizer, Cement and Banking sector. But with continuous selling pressure in PTC, index failed to close above the 8000 level. Cement sector was Thursday's out performer with LUCKY, DGKC and FCCL closing up 4.9%, 2.9% and 6.2% respectively. Etisalat's uncertainty over PTCL's payment by Sep.18 resulted in the scrip closing down 1.2% at PkR 64.15.

On Friday, some correction was witnessed as investors opted to play safe. Heavy profit taking was observed in PSO and BOP, closing the index down 0.6% (45 points). Most scrips traded in a narrow range. PSO closed down 2% at PkR 380.50, probably on the back of unchanged domestic petroleum prices. Overall, volumes shrunk from Thursday as has been common on Fridays. Cement sector remained bullish on developments of JCL and MCL's high valued privatizations.

Outlook: Overall market looks heavy but the sentiments still remain positive so we recommend selective cherry picking strategy. Stocks that we recommend to buy are NBP, POL, SNGP and SSGC. The index range we expect is between 7800-8300. Full year results of OGDC (BoD Sept. 19) and DGKC (BoD Sept. 19) are to be announced. OGDC has slightly come off on the expectation of results lower than the market consensus. We might see more weakness in OGDC (stock down 1.4% this week) if results are lower than the estimates, thus driving the index down (Index weightage 25%). Moreover, if the takeover by Etisalat scheduled on Sep 18 is delayed, it may lead to negative sentiments for the stock in the short term (stock down 2% this week).

Weekly

w-3

w-2

w-1

w

Forex Reserves (USD mn)

12,419

12,447

12,406

12,627

Exch Rate:

Exch Rate: PkR/USD

59.70

59.78

59.760

60.760

PkR/Euro

72.98

72.47

73.39

72.34

Monthly

Apr-05

May-05

Jun-05

Jul-05

Interest Rates 

3m T-bill

7.2%

7.60%

7.48%

7.69%

6m T-bill

7.8%

7.95%

7.94%

7.97%

12m T-bill

8.3%

8.45%

8.40%

8.69%

Inflation

CPI (YoY)

11.1%

9.8%

8.74%

8.99%

Money 

Currency in Circulation (YoY)

15.1%

Na

Na

Na

Deposits (PkR bn)

2290

2320

2355

Na

(YoY)

20.49%

19.4%

18.2%

Na

Loans (PkR bn)

1720

1752

1759

Na

(YoY)

37.5%

36.7%

32.8%

Na

M2 (YoY)

14.1%

Na

Na

Na

External Balance

Exports (USD mn)

1301

1384

1541

1272

(YoY)

Na

Na

23.4%

-17.4%

Imports (USD mn)

1903

2033

2241

1996

YoY

Na

Na

20%

-10.9%

Trade Balance (USD mn)

-601.5

-648.7

-699.5

-724

Yearly

2001

2002

2003

2004

2005

GDP (USD bn)

58.51

63.50

67.70

69.07

75.29

GDP growth

1.84%

3.10%

5.11%

6.40%

8.4%

Agricultural Growth

-2.2%

0.1%

4.1%

2.6%

7.6%

Services Growth

4.76%

5.30%

5.24%

5.49%

7.9%

Manufacturing Growth

9.3%

4.5%

6.9%

13.4%

12.5%

Population (mn)

143

146

148

149

152.5

GDP per capita (USD)

408.6

433.9

457.4

463.6

503

Trade Balance

Imports (USD bn)

10.202

9.434

11.333

15.47

20.6

YoY

6.2%

-7.5%

20.1%

36.5%

32%

Exports (USD bn)

8.933

9.14

10.889

12.27

14.4

YoY

9.1%

2.3%

19.1%

12.7%

17.1%

Trade Balance (USD bn)

-1.269

-0.294

-0.444

-3.2

-6.2

Current Account (USD bn)

-0.513

1.33

3.16

1.73

-1.9

Remittances (USD mn)

1087

2389

4236.85

3800

4168