KSE-100 negative return for consecutive sixth months

Karachi, August 1, 2019: The domestic equity bourse underwent a decline of 1,963 points in Jul’19, translating into a negative return of 5.8 percent MoM and 5.5 percent in USD terms; this is the worst performing month since Dec’18 whereby the market dipped by -8.5 percent MoM.

According to Arif Habib research, this took the CY19TD return to -13.8 percent (USD based -25.0 percent). Key concerns of investors’ during the outgoing month remained implications of the Extended Fund Facility (EFF) by the IMF, where reforms such as adoption of a market determined exchange rate, tighter monetary policy and regular adjustments in utilities’ (gas and electricity) tariff could dent corporate earnings going forward.

Moreover, expectations of a weaker result season for cyclical sectors such as cement, steel, and automobiles given slowdown in the economy, also kept the sentiment lackluster.

While market activity commenced on a positive note in Jul’19 in lieu of extension in the Tax Amnesty Scheme, where flows were expected to cushion revenues of the government, the index turned red post official agreement of the IMF Board for a USD 6 billion package.

Statement by the IMF Executive Director highlighted the challenges Pakistan faced including slowdown in growth and unsustainable fiscal & balance of payments deficits as well as strict policy action needed to address said issues.

In addition, interest rate hike, although in-line with our expectations, by 100bps to 13.25 percent during the month, further hurt sentiment at the bourse.

On the economic front, Current Account Deficit (CAD) witnessed a decline of 50 percent (USD 976 million) YoY, settling at USD 995 million in the month of Jun’19. During the month, downturn in CAD was witnessed due to 23 percent (USD 1,406 million) decline in imports.

However, exports also decreased by 11 percent (USD 268 million) YoY. During FY19, CA deficit receded by 32 percent YoY to USD 13,587 million compared to USD 19,897 million during same period last year.

Remittances by overseas Pakistanis registered an increase of 1 percent YoY to USD 1,651 million during Jun’19 compared to USD 1,628 million during Jun’18. The country wise data reveals that inflow from KSA, UK, UAE and USA amounted to USD 334 million (-1 percent YoY, -32 percent MoM), USD 269 million (+3 percent YoY, -31 percent MoM), USD 356 million (+3 percent YoY, -25 percent MoM) and USD 277 million (+6 percent YoY, -20 percent MoM), respectively. During FY19, remittances rose up by 10 percent YoY to USD 21,842 million compared to USD 19,914 million during same period last year.

Foreign direct investment (FDI) during Jun’19 decreased by 58 percent YoY (-43 percent MoM) to USD 130 million compared to USD 310 million in Jun’18. During FY19, FDI observed a decline of 50 percent YoY to USD 1,737 million.

Moreover, large scale manufacturing (LSM) witnessed a decrease of 3.8 percent YoY in May’19. This took the 11MFY19 LSM growth to -3.5 percent YoY over same period last year. Top three best performing sectors during 11MFY19 were: Electronics (+0.59 percent YoY), Fertilizer (+0.34 percent YoY) and Leather Products (+0.03 percent YoY), as per official data disclosed. However, the highest weighted sector textile (weight: 21 percent) displayed a decline of 0.08 percent YoY in 11MFY19.

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