Vaccine breakthrough: Flickering light at the end of the tunnel

November 11, 2020 (MLN): A major breakthrough on a potential vaccine for Covid-19, has appeared as a light flickering at the end of the tunnel, as it is being hailed as a major triumph in the war against the virus that has not only claimed the lives of millions of people but also shattered the global economy.

The news of Pfizer Inc’s experimental COVID19 drug being more than 90% effective in protecting people from COVID-19 on initial trial results, has caused widespread excitement around the world as global markets posted sharp rallies following this announcement. However, there are worries about how the drug will be delivered in tandem with the surge of new infections around the globe, nevertheless, the news has strengthened investors’ confidence.

On the domestic front, taking cue from global markets, AKD Research predicts that KSE-100 is likely to give a knee jerk positive rebound where commodity play should be the theme. The strong rebound in crude with Brent at USD41.7 and WTI at USD39.4 should finally lead to some price discovery in the local E&P sector.

With coal up 2.6%, Cements may potentially witness some pressure, however, is likely to be mitigated by impressive volumetric outlook. In line with global performance, Tech sector may witness some pressure due to a shift away from the “work from home” culture. while improved export outlook courtesy vaccine availability early on in the US and Europe may keep Textiles buoyant, the report added.

The Commercial Banks also expected drive the market rally owing to stark underperformance during the bull spree over the last couple of months. Furthermore, revival in economic activity is likely to bode well for advances outlook which would support balance sheet growth of banks

On the macroeconomic front, the uptick in economic activity in US and Europe, due to the early availability of vaccine will likely to fuel Pakistan’s export receipts, being the major exports destinations for Pakistan. However, higher oil prices are likely to translate into a higher import bill which may put pressure on the Current Account, another report by Arif Habib Limited (AHL) highlighted.

According to the report, the remittances momentum to stay afloat due to government’s efforts to increase flows through official banking channels and crackdown on unofficial channels such as Hundi/Hawala, which may ease some pressure on current account.

With regards to inflation, while higher oil prices may have an inflationary impact, the supply side relief will provide resistance, through import of wheat and sugar. According to AHL’s report, a total of almost 1mn metric tonnes of wheat is expected to be imported out of which 650Kmetric tonnes has been imported. Additionally, measures against hoarding of sugar are also likely to curtail inflationary pressure going forward.

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