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Annual Funds’ Review: Dawood Income Fund tops benchmark returns

July 15, 2019 (MLN): Investment in income funds during a phase of high volatility at equity market and unpleasant investment opportunities elsewhere, could be a dicey approach to uptake, one that requires smart tactics along with a hint of luck.

When Pakistan came to face such harsh conditions during fiscal year 2019, only one income fund managed to cross over the benchmark i.e. the annual average of 6-month KIBOR. Due to persistently rising policy rates throughout the year, the KIBOR maintained a steady hike up north.

While the average 6 month KIBOR for the year stands at 10.2%, the performance chart put together by Mettis Global shows that only Dawood Income Fund managed to jump over this benchmark by giving annual returns worth 11.12%.

However, the rest of the funds also gave decent returns with the lowest of them marked at 6.46%.

Dawood Income Fund’s net assets were valued at Rs.80.4 per share on June 30, 2019 as compared to Rs.72.4 recorded at the start of the year.

The open ended fund carries a ‘medium’ risk profile and has been given a stability rating of ‘AA-(f)’ by PACRA.

During first half of the year, most of the fund’s portfolio comprised of T-Bills, TFCs, Commercial Papers and placement with banks and DFI. Through the latter part (December 2018 onwards), the proportion of placement with banks & DFI grew larger and dominated the portfolio.

In addition to this, investors of this fund also recorded the highest dividend gain when compared to the gains earned from the rest of income funds.

As can be seen in the chart, Dawood Income Fund stands tallest with a dividend gain of 18.96%, followed closely by NAFA Financial Sector Income Fund with 14.11% and JS Income Fund with 14.08%.

In FY19, Dawood Income Fund gave a total payout of Rs.16.74 per unit, NAFA Financial Sector Income Fund gave Rs.1.57 per unit while JS Income Fund gave Rs.14.3 per unit.

The maximum total payout was given by Atlas Income Fund which gave returned its investors a sum of Rs.60.5 per unit.

In addition to this, Dawood Income Fund also observed maximum dividend yield at the end of FY19, positioned at 20.82% while JS Income Fund’s dividend yield stood at 14.96%.

In conclusion, all income funds performed decently during the year, but not all of them could beat the average 6-month KIBOR. To be precise, investment in income funds proved to be much riskier that the equity market, and much less riskier than the money market. That being said, the income funds’ performance befits their reputation as the medium risk investment opportunity.

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Global Stocks rally on strong jobs data

European stock markets dip at open

July 17, 2019: Europe's main stock markets eased at the start of trading on Wednesday, with London's benchmark FTSE 100 index down 0.2 percent at 7,563.88 points.

In the eurozone, Frankfurt's DAX 30 index dipped 0.1 percent to 12,424 points and the Paris CAC 40 lost 0.2 percent to 5,605, compared with Tuesday's closing levels.

AFP/APP

Higher rates boost NSS receipts volume in FY 2018-19:...

Jul 17, 2019: Owing to higher rates offered on different instruments, the net receipts of National Saving Schemes (NSS) witnessed considerable growth during the fiscal year 2018-19 compared to the corresponding period of last year, State Bank of Pakistan (SBP) reported.

“The net receipts of National Saving Schemes (NSS) surged to Rs225.3 billion, compared to only Rs 48.7 billion recorded in the previous corresponding period,” the SBP said in its latest third quarterly report on The State of Pakistan’s Economy.

This showed an increase of Rs176.6 billion in receipts during July-March (2018-19), according to the report.

Giving break up, the report said that the Defence Saving Certificates (DSC) receipts increased from Rs8.3 billion in FY18 to Rs44.6 billion in FY2019, showing an increase of Rs36.3 billion, the Special Savings Certificates (SSC) receipts increased from minus Rs38.5 billion to Rs33.1 billion, showing growth of Rs71.6 billion whereas the Regular Income Certificates (RIC) increased from Rs1.9 billion to Rs102.9 billion, a growth of Rs100.9 billion.

Similarly, the Behbood Saving Certificate (BSC) receipts increased from Rs32.1 billion to Rs89.5 billion, an increase of Rs57.5 billion.

However, during the period under review, the Special Saving Accounts (SSA) receipts declined by Rs102.9 billion from Rs27.5 billion to minus Rs75.4 billion, Saving Accounts (SA) from 2.2 billion to minus 1.1 billion, hence showing 3.3 billion decrease.

The other receipts of NSS increased by Rs16.5 billion, from Rs15.3 billion to Rs31.7 billion, it said.

The major rise was observed only in third quarter where the main contribution was from Regular Income Certificates (RICs), followed by Behbood Saving Certificates (BSCs) and Defense Saving Certificates (DSCs).

According to the report, this increase was due to higher rates offered on these instruments as the Central Directorate of National Savings (CDNS) had increased profit rates on the savings’ instruments under NSS with effective from January 2019

On the other hand, according to the report, the saving and special saving accounts recorded a decline during Jul-Mar FY19.

The Receipts are expected to grow further as the Central Directorate of National Saving (CDNS) has further increased rates on various savings certificates with effect from July 1st, 2019.

“The CDNS notified the upward revision in the profit rates for various saving certificates with effect from July 1st (2019), this would encourage people to invest in various schemes of the directorate,” a senior official of CDNS told APP.

The rate for Defense Savings Certificate has been increased from 12.47 percent to 13.01 percent while the rate of Special Saving Certificate from 11.57 to 12.90, Regular Income Certificate from 12 percent to 12.96 percent.

Likewise, the rates of Savings Accounts have been increased from 8.5 percent to 10.25 percent while the rates of Bahbood Savings Certificates and Pensioners’ Benefit Account were increased from 14.28 percent to 14.76 percent.

The government had also increased the short-term (3 months), medium-term (6 months) and long-term (12months) certificates to attract more people towards savings and investments with CDNS.

APP

CPHGC Power Plant to complete in August 2019: Chinese...

July 17, 2019: China Power Hub Generation Company is soon to complete its 2×660 MW coal-fired power plant in Hub, Balochistan.

Deputy Chief of Mission (DCM), Chinese Embassy Mr. Lijian Zhao congratulated Pakistan in his tweet on Tuesday, by saying that the CPHGC power plant in Hub Balochistan will be completed in August.  It is the largest project under CPEC in Balochistan. It created 2900 local jobs.

The CPHGC project, loca­ted in Hub, Balochistan, is a joint venture between China-Pakistan Inter­na­tional Holding — a state owned entity — and the Hub Power Company Ltd (Hubco) with 74 percent and 26 percent ownership respectively.

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CA balance to face challenges from low exports and...

July 17, 2019 (MLN): Recently the State Bank of Pakistan (SBP) released its third quarterly report on State of Pakistan’s economy for the Fiscal year 2019-20, as per which the overall macroeconomic situation remained challenging during the said period, as suggested by preliminary data.

However, the report also highlighted that the improvement in Pakistan’s current account balance during the aforesaid period gained further momentum as a significant decline in imports more than offset the stagnancy in exports and resulted in the shrinking of merchandize trade deficit.

The macroeconomic stabilization measures undertaken earlier resulted in a slowdown in economic activity in the country. The sizable decline in machinery imports following the conclusion of early phase of CPEC, lower quantum energy imports (excluding LNG) amid lower power generation in Q2 and Q3, and a temporary softening in global oil prices, all contributed significantly to improvement in the Current Account deficit (CAD) by reduction of import payments.

Thus, a slowdown in economic activity and government’s efforts to curb non-essential imports by imposing duties, seem to be just fine to reduce trade deficit, but the qualms haven’t yet disappeared as the other side of the equation i.e. the exports have shown no retrieval as yet, remained unanswered.

Exports in FY19 remained flattish. In the 1QFY19, they were down by nearly 12.66% QoQ, which went up to 4.73% growth by the end of 2QFY19. This is the time around which rupee depreciation started and the currency shed considerable value which reflected in exports numbers. However, in 3QFY19, the growth in exports started to slowdown, crushing to 0.03% QoQ by the end of 4QFY19.

Although trade deficit improved YoY in Q4, it would be worthwhile to note that the reduction in trade deficit by about 13.7% QoQ in 3QFY19 has been offset with rise in trade deficit by about 19% during 4QFY19, as the last quarter of FY19 witnessed 10.3% rise in imports along with a negligible (0.03%) growth in exports compared to previous quarter of FY19.

The SBP report further highlights that import payments dropped in Q3-FY19 was the largest drop in almost 10 years, and was more than sufficient to offset a marginal contraction in exports in the quarter, specifically due to declines in both energy and non-energy import payments.

Moreover, despite the contraction, the current account deficit (CAD) still remained at a higher level from the external account’s stability perspective. The average CAD between FY11-15 was US$ 2.6 billion only, while this number is US$ 10.3 billion in Jul-Mar. In addition, total foreign investment continued to decline since last three quarters of FY19 due to the looming uncertainty regarding the exchange rate adjustment and the finalization of the IMF program, which may have dented the investors’ confidence.

Besides, as per the SBP document, the lowering of Pakistan’s credit rating by Fitch in December 2018, due to the country’s external financing risk and deteriorating fiscal position, further exacerbated the situation.

By examining the above-mentioned scenario, it is sensible to say that despite the improvement in the CAD and trade balance, its management will remain challenging, especially when exports and foreign investments will not show corresponding increases.

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