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Last updated: Friday 23 Dec, 2005-12.30 P.M (PST)

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3 DAYS FORECAST
In oC

CITIES MIN MAX

HUM%

FOR.

KARACHI
Today 12 26 38 Sunny
Tomorrow 11 27 38 Sunny
Day after 11 28 38 Sunny
LAHORE
Today 1 20 87 Sunny
Tomorrow 2 20 87 Sunny
Day after 2 21 87 Sunny
ISLAMABAD
Today 0 18 59 Sunny
Tomorrow 0 18 59 Sunny
Day after 0 21 59 Sunny
HUM%: Humidity In %
FOR.: Weather Forecast
updated: Fri - Sun 23-25 Dec, 2005

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KARACHI         - 021 LAHORE          - 042 ISLAMABAD    - 051 FAISALABAD   - 041 MULTAN          - 061 PESHAWAR    - 0521 CANADA          - 1 KUWAIT           - 965 INDIA               - 91 IRAN                - 98 U.K                   - 44 U.A.E                - 971 U.S.A                - 1

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 PAKISTAN WEEKLY REVIEW

AlFalah Securities (Pvt) Ltd.
Monday, Nov 14, 2005-Friday, Nov 18, 2005

 

BOARD MEETINGS

COMPANY

DATE

DAY

TO CONSIDER

Siemens Pakistan Engineering Co. Ltd

21-11-05

Mon

Financial Statement for the period ended September 30, 2005.

Telecard Limited

22-11-05

Tue

Quarterly Accounts for the period ended September 30, 2005.

BOC Pakistan Limited

25-11-05

Fri

Annual Accounts for the period ended September 30, 2005.

ECON FOCUS

RETURN OF THE GREMLINS

With the Annual SBP economic review doing the rounds in the upper echelons of many a corporate board room; the jury is out to deliver the verdict on the workings of the economy and its future trajectory. FY05 turned out be a watershed in the history of Pakistan with the economy registering a growth rate of 8.4%, a feat unparalleled in the last 20 years. But a closer look suggests that the future trajectory (strong believers we are in letting bygones be bygones) of the economy might be in for some rough weather ahead. Keeping the bigger picture in mind, kudos to the economic research department at the SBP for at least identifying some of the gremlins that might hamper the sustainability of growth rates (downward revisions for FY06 growth rates are already out).

THE DETERMINANTS:

There is a plethora of economic literature shedding light on the determinants of growth rates, there is some stylized to the Pakistani environment and all of it has the same common theme of investment and rainfall (agriculture provides one-quarter of the growth impetus) variables as the key determinants for growth rate sustainability.

Although, a healthy macro-economic environment coupled with political stability are taken to be pre-requisites for any meaningful growth patterns, it's the investment variable that is the cause of biggest concern and the chief gremlin that could throw a spanner in the plans of our economic managers.

INVESTMENT: ROSES VS. THORNS:

On the face of it the gross fixed investment showed a growth rate of 15.6% in FY05 (average for the last 5-years: 10.6%) with the private sector investment running the show and registering a healthy increase of 19.3%. But the good news ends here; despite the rise in nominal investment during the last three years it is the investment to GDP ratio that is a source of concern. The ratio has become stagnant and hovering around the 15.5% levels for the last three years. A cross country analysis in the table shows Pakistan amongst the bottom in terms of investment to GDP ratio. Interestingly countries with healthy investment to GDP ratios have shown high sustainable growth rates.

 

INVESTMENT PERCENT OF GDP 

GDP GROWTH PERCENT

2000

2003

2000

2003

China

36.3

44.4

8

9.1

South Korea

31

29.4

8.5

3.1

Indonesia

16.1

16

4.9

4.1

Malaysia

27.2

21.8

8.5

5.2

Thailand

22.8

25.2

4.8

6.7

Bangladesh

23

23.4

5.9

5.3

India

24.4

23.3

4.4

8.1

Pakistan

17.4

16.7

4.3

5.1

Sri Lanka

27.9

24.1

6

5.9

Source: Alfalah Securities Research

The primary sources of fixed investment stock emanate from national savings and foreign direct investment. Since FDI, especially in the case of Pakistan, can be volatile and not to be banked on the only solace lies within the internal generation of funds through savings that need to be made the mainstay for future economic growth. This brings us to the root of all gremlins, an abysmally low savings rate and that too on a decreasing trend.

The national savings deteriorated for the second successive year, recording a 4.5% fall in FY05, after seeing growth decelerate to 3.2% in FY04.

The savings to GDP ratio for FY05 was 15.1% down from the FY03 peak of 20.8%.

This brings us to the Saving-Investment Gap analysis which highlights the holes in the economy. The gap ran into a deficit during FY05 (S-I gap: 2.9%), which is not ominous for a developing economy in itself, but the portentous aspect of the deficit is that it was driven by a decrease in savings to GDP ratio as opposed to an increase in investment to GDP ratio. A negative gap becomes desirable only if the country is investing borrowed resources in enhancing its productive capacity that is likely to improve its repaying capacity in the future. But this certainly doesn't seem to be the case.

MARKET THIS WEEK

The week closed at 8933 index level, up 1.6% from last week. Average volumes traded over the week decreased from 454mn to 401mn shares (down 11.5%) and average weekly turnover of USD 455mn also registered a decrease of 20%. This decline was as a result of no final verdict on the sale of nations biggest phone service provider, PTCL, suggesting that some investors preferred to take fresh positions only after the issue is settled.

Erratic movement in share prices led to a relatively dull day at the KSE on Monday. KSE Index gained 44 points or 0.5% to 8838 level. KESC gained 8.2% on the back of its sale to Hasan Associates of 73% stake in the company. As cement exports declined by 6% due to onset of winter season in Afghanistan, local share prices gained leading by Fauji Cement Ltd which closed up 5% at PkR 24.15. Lucky Cement and DG Khan Cemnent closed up 1.3% and 0.9% respectively. Another concession by Privatization Commission to Etisalat in paying for the nation's biggest telecom services provider in 3 equal installments of 7, 14, and 20 months respectively attracted speculation in the stock as it remained the volume leader, closing up 0.2% at PkR 63.75.

Tuesday saw the index rising 51 points, once again failing to close above the 8900 level. Fauji Cement was the most active share, gaining 2.1% at PkR 24.65 on the back of improving cement demand locally. In the banking sector, National Bank, Bank of Punjab and Bank Alfalah, gained 1.4%, 1.1% and 2.2% respectively. Pakistan PTA also generated interest among investors, closing down 2.4% on speculation of sale of its plant.

Mix sentiments on Wednesday led to an erratic movement in the share prices of most scrips. The index posted a gain of 5 points at 8895 level. Pakistan Telecommunication Co. was the volume leader, gaining 1.5% to PkR 64.00, after Prime Minister Shaukat Aziz told reporters on CNBC television that the sale of telecom giant was still intact. A bad day for the cement sector as DGKC, LUCK and FCCL all closed in the red zones. Amongst the banks, Bank Alfalah rose 2.2% at PkR 64.10.

Thursday's market declined 31 points or 0.4% closing the index at 8864 level. Profit-taking was witnessed in banking and oil and gas sector. National Bank dropped 0.7% to PkR 166.4 whereas MCB declined 1.2% to PkR 147.65. Total turnover was USD 323mn, 33.6% lower than what was recorded a day earlier.

Index gained 0.8% or 69 points on the back of privatization rumors in Pakistan Telecom on Friday, closing at 8933 level. As third round of talks between Etisalat and Privatization Commission ended in Islamabad a day earlier, investors seemed to be optimistic on the sale of nations biggest phone service provider. PTCL was the volume leader, gaining 0.9% at close. Cement sector performed well on the news of an increasing demand to meet the reconstruction activities of the earthquake. About 41mn shares traded hands in DGKC, gaining 1.1%. Fauji Cement closed on its upper circuit whereas other third-tier cement stocks such as Gharibwal Cement and Dewan Cement closed up 7.1% and 3.4% respectively.

OUTLOOK

Market stands at a crucial level of 8933 where one would expect certain resistance. If the market is able to breach the 9000 level and sustain it, one might expect a handsome upside rally from there on. Until then, market is expected to fluctuate in the 8700-9150 index window. Any concrete development on the sale of PTCL over the weekend would definitely give a boost to the market. Our picks for next week are FFBL, BOP, DCL and ICI.

Pakistan Economics Snapshot

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

 
 

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