Nervousness likely to prevail
The political turmoil in the country, along with the continuation of the currency crisis, has led to weakness in the market with a negative stock review for December 2022 during the week ending on December 23, 2022. The KSE-100 index settled at 39,669 points, down 1,632 points or 4%WoW.
The index slipped below the 40,000 level since late July 2022. The weakness in the index was accompanied by a meager improvement in participation over the past week, with average daily trading volume at 180.2 million shares during the week, as compared to 161.9 million shares in the earlier week.
Other major news flow during the week included: 1) July-November current account (CAD) shrank 57%YoY, 2) GoP likely to slap flood levy on non-essential imported items, 3) definitive agreement regarding Reko Diq project finalized, 4) Pakistan’s REER index declined to 98.8 in November, 5) gas sector 10-member body formed on circular debt settlement, 6) SBP lowers FY23 growth forecast, 7) international donors to extend over US$16 billion for rehabilitation of flood victims, 8) S&P lowered Pakistan’s sovereign rating, and 9) Super tax to become applicable in TY23 and onwards. Furthermore, the foreign exchange reserves held with the SBP fell to US$6.1 billion.
On the currency front, the PKR remained largely flat against the US$.
Top performing sectors were: Textile Weaving, Tobacco, and Insurance, while the least favorite sectors were: Leasing Companies, Refineries, and Cable & Electrical Goods.
Stock-wise, top performers included: LOTCHEM, AICL, PSEL, PPL, and PAKT, while laggards were: PGLC, PAEL, TRG, ANL, and PIOC.
Flow-wise, Banks/DFIs were the major buyers with net buy of US$7.9 million, followed by Companies with a net buy of US$5.0 million. As against this, Brokers and Individuals were major sellers during the week, with the net sell of US$3.8 million and US$3.8 million, respectively. Foreign Investors were sellers of US$3.3 million during the period.
With the political uncertainty and currency crisis still ongoing and no definitive action from the IMF on the horizon, the market is expected to witness pressure in the near future.
Sentiments were further worsened by the advent of security tensions in the Northern part of the country. In this backdrop, the need of the hour is to arrest the country’s dwindling reserves, which would be dependent on flows from multi-lateral and bi-lateral sources.
Any news regarding foreign inflows would be well received by the market.
Furthermore, with inflation readings persisting at elevated levels in the foreseeable future, further tightening by the SBP is still on the cards, fear of which would likely to keep sentiment in the equity markets muted. Consequently, analysts advise clients to stay cautious while building new positions in the market.
The data shows Textiles and Clothing export from Pakistan rose to US$1.4 billion in November 2022, up 4.7% MoM due to the low base from the earlier month. When compared to the 4MFY23 period, the exports in November 2022 declined by 4.3%.
On a cumulative basis, 5MFY23 exports were reported at US$7.4 billion, lower by 5.1%YoY. Value-added textiles spearheaded the sequential growth, increasing by 7.6% MoM, which offset the 10%MoM dip witnessed by the non-value-added segment. The data indicates that exporters had to offer lower prices in a bid to increase volumes.
For instance, average prices of Knitwear products were down by 2% MoM and 4% lower than the 4MFY23 average realized price. Inflationary pressures in the developed world and the resulting dip in disposable income led to muted demand from the textile sector. Analysts expect the challenges to continue over the course of the fiscal year and lead to a 10-15% export contraction in the sector.
To note, inventories have been built up by large retailers in the UK, US and Europe which are expected to deplete over the course of the ongoing holiday season. As a result, the exports may see a temporary blip as retailers look to replenish inventories. However, experts view this to be a short-lived phenomenon.
Pakistan’s Current Account Deficit (CAD) for November 2022 improved to a paltry US$276 million as compared to US$569 million in the earlier month. This takes Pakistan’s CAD for 5MFY23 to US$3.1 billion, lower by 57%YoY. The improvement in the month’s numbers is largely attributable to a better trade balance during the month, with the balance of trade on goods and services receding to US$2.09 billion, from US$2.30 billion in October 2022.
Petroleum Group imports emerged as a breath of fresh air during the month, with SBP data indicating a US$213.7 million or 15%MoM drop in the group’s imports (US$115 million or 29%MoM drop in petroleum crude imports and a US$90.1 million or 25% drop in LNG imports), being recorded at US$1.25 billion for the month. The differential between total import figures reported by SBP and PBS has widened to US$919 million, with the PBS figures higher as compared to SBP’s published figures. To note, the 10-year average stands at US$344 million.
Workers’ Remittances were reported at US$2.11 billion for the month of November 2022 as compared to US$2.22 billion a month ago. To recall, remittance inflows averaged US$2.61 billion per month during FY22 and have averaged US$2.40 billion in 5MFY23. Foreign Direct Investments (FDI) dropped to US$81.8 million for November 2022 as compared to US$84.7 million in the earlier month and US$158.4 million for the same period last year.
This indicates 5MFY23 FDI dropped by 51.4%YoY to US$430.1 million; export demand has been hindered due to economic challenges in Pakistan’s export markets and cash flow issues being faced by major exporting sectors. As against this imports are expected to remain around current levels, unless commodity prices drop substantially.