February 11, 2020 (MLN): The Pakistan Stock Exchange has informed all market participants that Kohinoor Power Company Limited has rectified its regulatory default by paying the Annual Listing Fee for two years.
However, it was further stated that the company will remain quoted in the Defaulters’ Segment despite the above stated rectification.
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February 23, 2020 (MLN): The departed week observed several important developments on the regional and international front that serve as a gateway for Pakistan to economic development. These developments include;
On Friday, The Financial Action Task Force (FATF) during its plenary meeting held in Paris has agreed to maintain Pakistan’s status on FATF’s Compliance Document, normally referred as the Grey List till June 2020.
The same day, Pakistan and Japan agreed to enhance mutual collaboration in myriad fields including infrastructure development, higher education, and cultural and academic exchanges. The understanding came during a meeting between Prime Minister Imran Khan and President of Japan International Cooperation Agency Shinichi Kitaoka in Islamabad.
Furthermore, to provide maximum relief and facilities to the masses, the Federal Cabinet decided not to increase the prices of gas and electricity for domestic, industrial consumers and Tandoors.
On Thursday, the Competition Commission of Pakistan approved the Uber-Careem merger through a Phase-II Order, imposing pro-competitive and tough conditions ensuring a level playing field for the new entrants/competitors in the app-based Ridesharing market.
Besides, the Standing Committee on Privatization of the National Assembly in its meeting on Thursday considered few amendments in Privatization Commission Ordinance2000, which are necessary for swiftly pursuing active privatization plan. The proposed amendments empowered Prime Minister to appoint chairman, secretary or any board member. The Prime Minister may appoint a special medical board to determine the health of chairman, secretary or any board member of PC and, lastly the Privatization Commission may be able to open accounts in any of high credit rating banks.
In addition to this, ECC in its meeting on Wednesday, approved public sector procurement of 8.25 million tons of wheat Rs 1365 for the coming season. If the need arises, 0.5 million tons will be imported around the year to cater for any shortages.
Meanwhile, Adviser to the Prime Minister on Commerce Abdul Razak Dawood said that the government was committed to removing all the obstacles in way of enhancing pharmaceutical exports up to the US $5 billion with the special focus on increasing the exports volume through tariff rationalization, trade-related investment, institutional reforms and easing of business regulations.
On the energy front, Exploration and Production (E&P) companies, operating in Pakistan informed that they, have so far drilled 18 offshore oil and gas wells including Kekra-I to discover hydrocarbon deposits in the deep-sea waters but could not get the required results.
Moreover, Gwadar Development Authority (GDA) director-general Shahzeb Khan Kakar said the upcoming oil city project in Gwadar was going to host a multibillion-dollar Saudi Aramco refinery and expressed hope the process of land allocation for the $10-billion Saudi oil refinery project and a $1-billion petrochemical complex would be completed within a couple of months.
On the upside, Mr Ahmad Hanif Orakzai, Acting Secretary, Economic Affairs Division, Government of Pakistan and Prof. Andrew Campbell, Chief Executive Officer, Australian Center for International Agriculture Research (ACIAR) signed Memorandum of Subsidiary Agreement on “Understanding the Drivers of Successful and Inclusive Rural Regional Transformation and Sharing Experiences and Policy Advice in Bangladesh, China, Indonesia and Pakistan”. Under this agreement, Australia will provide AUD 1.2 million for a programme to be completed in three years till 2022.
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February 23, 2020 (MLN): The reverse repo rate has risen dramatically from its lows of 6.25 percent in December 2017 to 13.75 percent in July 2019 as the State Bank of Pakistan (SBP) fought to rein in inflation, a leading global financial service provider Credit Suisse Group said in a report.
In doing so, the central bank also fulfilled the policy actions required by the IMF. Rates have been held steady since then and “we do not see further rate increases on the horizon”, the report said.
With inflation remaining elevated, it seems too early for a rate cut and we believe the SBP will most likely await firm signs of disinflation before doing so. In addition, real rates remain low implying limited pressure for rates to be reduced in the near term.
Rupee
In parallel with the sharp increase in base rates, the PKR was devalued by 33 percent from December 2017 to July 2019. Most of the devaluations were undertaken in a series of 5 percent–6 percent steps and occurred against the backdrop of the government’s negotiations with international donors to bridge its estimated 12 billion dollars financing gap, Zurich-based Credit Suisse said.
The run-up to the EFF approval saw a disorderly weakening of the PKR by a further 15 percent, which we believe was driven by moves to comply with the IMF’s final prerequisites for the funding arrangement.
This was not a surprise, as the central bank governor (newly appointed in May 2019) was previously the IMF’s senior representative in Egypt, where he oversaw similar policy initiatives.
Importantly, however, the approval of the EFF arrangement triggered a slow and steady 4% appreciation in the PKR, with extremely low levels of volatility. In our view, this points to the currency being brought back under control and suggests limited downside risk, going forward.
“We expect the PKR to remain stable going forward, supported by Pakistan’s commitment to the EFF program. Thus far, the IMF’s assessment of Pakistan’s progress has been positive and on track”, the report said.
A continuation and improvement in this trend could support a modest overshoot on the REER. “We note that a move in the REER back to 105 (in line with levels seen prior to 2014) would correspond to a further 2 percent–4 percent appreciation in the PKR, according to our estimates.
Pakistan Stock Exchange
“At its trough in August 2019, shortly after Pakistan had entered the EFF agreement with the IMF, the KSE100 Index lost just under half its value vs. the peak in mid-2017”, the report said.
The stabilization in the currency and subsequent improvement in economic indicators have supported a strong 51 percent rebound in the index, decisively breaking the index out of its preceding downtrend
Forward P/E ratios have consequently moved out from deep value levels; however, they remain below their long-term average. Relative to the emerging market (EM) universe, Pakistan’s P/E ratios are still considerably undervalued.
Earnings forecasts have remained robust – even the recent spate of downgrades was not enough to push earnings momentum into contraction for any meaningful amount of time (Figure 15).
A the time of writing report (21-2-2020) the index is consolidating the recent substantive gains. Given the scale of the rally, and the subsequent normalization in exchange rates.
“We expect the index to remain range-bound near term. However, on a 12-month horizon, we see significant scope for further upside supported by earnings upgrades and cheap valuations. There is additional support from the attractive 6.4% forward dividend yield”, the Credit Suisse report said.
A key drawback for international investors, however, is low liquidity in the index. Equities as a whole saw trading volumes decline from a peak of $1.4 million daily in early 2017 to reach a post-financial crisis low of just USD 0.2 million daily in August 2019 (figures based on three-month averages). The recent rally has lifted volumes significantly, but the market is still only seeing USD 0.5 million daily.
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Equity Roundup
Dull, neutral, sideways and stagnant were some of the words used by analysts to describe trading activity during the week as the index gained less than 6 points and the average daily volume fell to 106 million shares.
A note from JS Research highlighted “The outcome of the IMF and FATF reviews continued to dominate the headlines and market sentiment, leading to some nervousness for market participants”.
The KSE100 index traded in a range of just 650 points or 1.62 percent of previous weeks close, making a weekly high of 40,698 (+455 or 1.13 percent) and a low of 40,047 (-196 or 0.49 percent).
Of the 97 companies traded during the week, 49 closed up, 44 were down while 4 remained unchanged.
Commercial Banks led the gains as they added 76 points to the index courtesy of HBL and UBL contributing 65 and 48 points respectively.
Ironically while OGDC and FFC added 26 and 24 points to the index the Oil & Gas and Fertilizer sectors took 62 and 55 points away from the index while tobacco was bad for the index’s health by 32 points.
The all share market capitalization declined by USD 222 million or 0.45 percent compared to the previous week.
Figures released by the NCCPL show that Foreign investors were net sellers by USD 8.6 million with Foreign Corporates leading the way with a net sell of 7.8 followed by overseas Pakistanis selling USD 0.685 million.
Local Investors picking up the most shares were Insurance Companies with USD 7.844 million followed by Corporates with USD 1.95 million while Mutual Funds were net sellers by USD 2.16 million and individuals were the largest sellers, offloading shares worth USD 3.128 million.
Looking forward, Spectrum Research expects the market to stay range-bound in the upcoming week the next wave of demand induced from the construction site and exports oriented sectors, which are under pressure currently due to the high inflation and interest rates.
Furthermore, spectrum research added “The step taken by the government towards controlling prices and shortage of perishable items will help to curb high inflation. Falling inflation will ensure interest rate reversal in the not-too-distant future”.
Similar sentiment was expressed by Arif Habib Research who expect “the equity bourse to remain neutral to positive on the back of conclusion of the FATF review, expected approval of IMF’s third tranche, and imposition by the Federal Government on export of essential food items (Onions, Potatoes and Tomatoes) so as to control rising inflation along with deferment of hikes in utility rates till Jun’20. Moreover, improvement witnessed on the macroeconomic front, with the Current Account Deficit (CAD) shrinking by 72% in 7MFY20 and rising foreign investment in debt securities exceeding the USD 3bn mark, also augur well”.
Forex Round
PKR ended its run of successive gains as the local currency closed at 154.20 against the dollar, down by around 3 paisa compared to last week.
The currency was fairly stable trading in a range of 12 paisa during the week as 10-day volatility declined from 0.83 percent to 0.81 percent.
Fixed Income
Yields for the longer-term PIBs retreated during the week as the 3, 5 and 10-year rates came down by 10, 17 and 12 basis points while the yields for 3, 6 and 12-month MTBs remained largely unchanged.
Weekly SPI data released by the Pakistan Bureau of Statistics (PBS) showed that Yearly growth in inflation had slowed down from over 20 percent in January to 15.97 percent as of Feb 20, 2020.
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| Weekly Performance | ||
|---|---|---|
| Feb 21, 2020 | Feb 14, 2020 | |
| PKR InterBank | 154.2038 | 154.1697 |
| KSE100 Index | 40,249.22 | 40,243.26 |
| Avg Daily Volume | 106,451,146 | 167,531,210 |
| Gold (Karachi) Rs/10 gm | 80,290 | 77,803 |
| KIBOR 6M | 13.48 | 13.49 |
| 10Y PIB | 11.15 | 11.27 |
| EUR | 1.0845 | 1.083 |
| GBP | 1.2954 | 1.3046 |
| CHF | 0.978 | 0.9821 |
| JPY | 111.55 | 109.783 |
| GOLD | 1643.43 | 1583.74 |
| NY Light Crude | 53.46 | 52.05 |
| Open Market Rates | ||
| Feb 21, 2020 | Feb 14, 2020 | |
| USD | 154.60 | 154.70 |
| EUR | 167.25 | 168.00 |
| GBP | 200.00 | 201.50 |
| JPY | 1.3860 | 1.4134 |
| AED | 42.10 | 42.25 |
| SAR | 41.10 | 41.25 |
| SBP Data | ||
| T-Bill Auction Cutoff Yield | Feb 12, 2020 | Jan 29, 2020 |
| 3M | 13.4149 | 13.4296 |
| 6M | 13.2999 | 13.2890 |
| 12M | 13.5199 | 13.1340 |
| PIB Auction Cutoff Yield | Feb 04, 2020 | Jan 08, 2020 |
| 3Y | 12.0500 | 11.7500 |
| 5Y | 11.4000 | 11.1938 |
| 10Y | 11.0000 | 10.9000 |
| 20Y | Bids Rejected | Bids Rejected |
| Interest Rate Corridor | Jul 17, 2019 | May 21, 2019 |
| SBP Policy Rate | 13.25 | 12.25 |
| SBP Reverse Repo Rate | 13.75 | 12.75 |
| SBP Repo Rate | 11.75 | 10.75 |
| Weekly Indicators | ||
| Feb 14, 2020 | Feb 07, 2020 | |
| SBP FX Reserves * | 12,504.70 | 12,430.80 |
| Bank FX Reseves * | 6,242.40 | 6,304.60 |
| Total FX Reserves * | 18,747.10 | 18,735.40 |
| Feb 20, 2020 | Feb 13, 2020 | |
| SPI (Combined Group) ** | 130.67 | 130.85 |
| Change - WoW (pct) | -0.14 | -0.38 |
| Change - YOY (pct) | 15.97 | 16.38 |
| Monthly Indicators | ||
| January | December | |
| Consumer Price Index (Base 2015-16) | 133.03 | 130.45 |
| Change - MOM (pct) | 1.97 | -0.34 |
| Change - YOY (pct) | 14.56 | 12.63 |
| WholeSale Price Index (Base 2015-16) | 144.34 | 141.75 |
| Change - MOM (pct) | 1.83 | -0.30 |
| Change - YOY (pct) | 15.36 | 12.37 |
| Sensitive Price Indicator (Base 2015-16) | 131.61 | 130.36 |
| Change - MOM (pct) | 0.96 | -1.26 |
| Change - YOY (pct) | 19.53 | 18.20 |
| January | December | |
| Exports * | 1,970.00 | 1,993.00 |
| Imports * | 4,037.00 | 4,037.00 |
| Trade Balance * | -2,067.00 | -2,044.00 |
| January | December | |
| Home Remittances * | 1,907.32 | 2,097.23 |
| January | December | |
| Total Foreign Investment * | 1,613.24 | -198.27 |
| Quarterly Indicators | ||
| Dec 31, 2019 | Sep 30, 2019 | |
| Pakistan's External Debt * | 111,047.07 | 107,058.99 |
| Annual Indicators | ||
| 2018-19 | 2017-18 | |
| GDP Growth Rate | 3.29 | 5.53 |
| Agriculture | 0.85 | 3.94 |
| Manufacturing | -0.27 | 5.43 |
| Commodity Sector | 1.13 | 4.45 |
| Services Sector | 4.71 | 6.25 |
| Trade Balance * (July - June) | -31,820.00 | -37,583.00 |
| Worker Remittances * (July - June) | 21,841.50 | 19,913.55 |
| Foreign Investment * (July - June) | 329.89 | 5,680.93 |
| Annual Inflation Rate % (July - June) | 7.32 | 3.92 |
| * Amount in USD Million | ||
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February 23, 2020 (MLN): The financial snapshot of the country in full detail was highlighted with the economic and financial data releases over the course of the week.
The Weekly Sensitive Price Indicator (SPI) for the Combined Group decreased by 0.14% during the week ended Feb 20, 2020 while the SPI increased by 15.97% compared to the corresponding period from last year.
In 2019, ADB's loan and grant disbursements to Pakistan amounted to $2.4 billion, comprising $1.8 billion in program lending and $634.3 million in project lending.
The outgoing week saw an influx of funds from overseas investors, as the purchase of securities via Special Convertible Rupee Account (SCRA) exceeded the total sale of securities by Rs. 21.7 billion.
Pakistan's Forex Reserves increased by USD 11.70 Million or 0.06% and the total liquid foreign reserves held by the country stood at USD 18,747.10 Million on Feb 14, 2020.
Pakistan’s current account deficit for the first seven months of Fiscal Year 2020 stood at USD 2.65 Billion compared to USD 9.47 billion from the corresponding period of last year, showing an improvement of USD 6.825 Billion or 72 percent.
Pakistan’s trade deficit in services stood at $182 million during January 2020, showing a decline of 23% as compared to the deficit reported in December 2019.
The imports of mobile phones witnessed a significant growth of 141.65% YoY and 22.73 % MoM to stand at $144 million in the month of January 2020.
The exports of the food group witnessed a decrease of 13.51% YoY and 3.56 % MoM to stand at $409 billion in the month of January 2020.
Pakistan's outstanding debts as of January 31, 2020 stand at a massive sum of Rs.20.41 trillion whereas total debt at the end of the prior month was Rs.20.72 trillion, meaning that around Rs.311.94 billion were retired during this month alone.
The overall exports of the textile group, during the month of January 2020 stood at $ 1.19 billion i.e. around 4.59 % higher as compared to the previous month and an increase of 2.25% as compared to the same period last year.
The non-government sector has retired a net sum of Rs.32.91 billion during the week ended February 07, 2020, which brings the cumulative net borrowing for ongoing fiscal year FY2020 to Rs.140.4 billion. The net borrowing as of prior week was recorded at Rs.173.31 billion.
The government of Pakistan has accumulated Rs.36.32 billion during the week ended February 07, 2020, which brings its total net retirement for ongoing fiscal year FY2020 to Rs.3.62 billion. As of prior week, the government had retired a net sum of Rs.39.94 billion.
The central Government's domestic debt and liabilities during six months of the current fiscal year rose by Rs 944.6 billion or by 5% to Rs 21.67 trillion.
During seven months of the current fiscal year (FY20), the inflows of foreign investment into Pakistan have been utterly inspiring as it surged by a whopping 66% to $ 3.42 billion as compared to Jul-Jan FY19.
The overall exports within the transport group, during the month of January 2020, stood at nearly $116.4 million, i.e. around 26.81 percent higher as compared to the previous month and 48.11 percent lower as compared to the same period of last year.
The country’s total external debt servicing on outstanding loans soared to $3.9 billion in the 2QFY20 from $3 billion recorded in the preceding quarter of FY20, showing an increase of 27% QoQ.
Total Foreign Investment in the country in the month of January 2020 stood at USD 1.613 billion compared to a disinvestment of USD 198.3 million in December 2019.
The government has released around 50.4 percent of the total Rs 581.812 allocation during the first seven months of the current fiscal year to execute petroleum projects under the Public Sector Development Programme (PSDP 2019-20).
The government’s total external debt and liabilities increased to $111 billion by the end of December 2019, showing an increase of 12% YoY. This figure was accounted for 39.5% of the total GDP.
The attractive returns offered by government-backed securities has enticed foreign investors to invest more as the total inflows in government short-term Securities (T-bills) have exceeded USD 3.134 billion (net) since the beginning of the current fiscal year till February 13, 2020.
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