KSE Weekly Review

LAHORE - Market remained bullish during the week to close above 23,000 points mark for the first time ever by gaining 3.8% WoW. Volumes also increased by 30% to Rs.12 billion. However volumes declined in last 2 trading session due to short trading timings for the month of Ramazan. However, positive statement by rating agency Moody’s, gain in global equity markets and support from local institutions kept the sentiment positive. Gas distributors rallied on the back of favorable decision by the court on their loss formula. Small and mid size IPPs remained in the limelight after huge dividend announcement by Kohinoor Energy after receiving payments on account of Circular debt. Additional gas supply from Guddu power plant helped Engro Corp to outperform the market by 12%. While foreigners’ favorite MCB and OGDC remained major contributors to the index gain. Going forward, result announcements and energy policy by the govt will be the key events.

Propped up by the historic elections and reduction of 500bps in the policy interest rate in last 24 months, Pakistan equity market provided return of 24% in 1H2013. Based on analysis of stocks in Topline Universe experts found out that cement companies remained top performers during the aforementioned period where all 3 cement companies in Topline universe outperforming the benchmark index. On the contrary, Fertilizer shares remained under stress while E&P stocks return also failed to match the benchmark index gain.

Outgoing 1H2013 was good for Pakistan Cements, as falling coal prices coupled with declining interest rate environment spurred the profitability of the sector. Furthermore, being the election year, domestic demand of the commodity also improved (up 4% to 24.9mn tons in FY13). These developments have kept investors interested in the cement shares.

Although, local fertilizer sales grew by approx. 18% to 3mn tons in 1H2013, but gas supply and gas price risk has kept investors away from the fertilizer stocks. Further, rapidly diminishing gap between local and imported urea prices has raised questions about the sector’s once famous pricing power. With talks circulating in the media regarding removing the gas (feed) price subsidy on fertilizer and supply of gas to efficient plants, fortune of fertilizer manufacturers have been under stress.

With gas production down 1% and oil production up by 11% in 1H2013, E&P sector of Pakistan failed to beat the market return, as PPL, OGDC and POL yielded returns of 23%, 21% and 18% respectively.  Experts said that during the month of June so far, the KSE100 only shed 3.9% (2nd time a negative return in a month out of the last 13 months of straight run-up since Jun’12) while the Asia Pac region and few MSCI indices were mostly showing downward trend in equities.

Surprisingly, and a bit of a concern too, foreign flows to Pakistan equities now have an astounding share of 7% of the total net flows to Asia Pac region Jan’13 to date (see 2nd table on the left). This is quite startling as the share of foreign flows that Pak equities have had in the past hardly made up about 1% of the total flows to the Asia region. KSE100 received a net inflow of USD 408mn Jan’13 to date vis-à-vis net inflows of USD 6,051mn to the entire Asia Pac region.

Experts at AHL said in a report that in the month of June, even when the entire Asia Pacific region experienced negative flows to equities with net massive outflows of USD 13.2bn MTD – after the Federal Reserve called for limiting stimulus – encouragingly, only Pakistan equities across the entire region stood with positive net inflows of USD38mn. As far as KSE100’s relative charm to regional peers is concerned, Pak equities still provide massive discounts on all key multiples.