Lahore

The benchmark KSE-100 index declined 0.2 percent to close at the 30,949 index level as turmoil in regional markets and consecutive foreign selling continued to weigh on local bourse.

Average daily volume increased 12 percent to 147.5mn shares and average daily value increased 10 percent to Rs8bn/US$76.3mn.

On a sector level, Travel & Leisure increased the most by 11.3 percent, followed by Oil & Gas and Forestry (Paper & Board) which increased by 5.7 percent and 3.0 percent, respectively. On the flipside, Life Insurance declined by 2.4 percent, Household Goods by 1.8 percent and Commercial Banks by 1.5 percent over the week.

Foreigners were net sellers of US$31.7mn worth of stocks over the week. Major net selling was seen in the Chemicals sector worth US$12.3mn, followed by Banks and Cement sector with net selling of US$5.8mn and US$4.2mn, respectively.

Gazprom, the Russian natural gas exploration and distribution company, is planning to supply 5-7mn tons of liquefied natural gas (LNG) to Pakistan per year in the medium term. Negotiations with Ministry of Petroleum and Natural Gas on supply of LNG were held in the outgoing week.

According to news reports, National Assembly (NA) passed the Pakistan International Airlines (PIAA) Corporation conversion Bill, 2015 to covert PIA into a public limited company. Despite criticism, the bill was passed with majority. The company’s shares have risen ~23 percent since January 19, 2016, when the bill was sent to NA.

In the T-bill auction held earlier this week, Govt. raised Rs292.2bn against target of Rs350bn. The cut-off yields declined by 8-13 bps as 3-month T-bill settled at 6.17 percent (amount accepted Rs73.7bn), 6-month T-bill settled at 6.18 percent (amount accepted Rs55.9bn) and 12-month T-bill settled at 6.23 percent (amount accepted Rs162.5bn).

Spread between lending and deposit rates declined to 5.19 percent in Dec 2015 as against 5.29 percent in Nov 2015 and 6 percent in Dec 2014. Lending rates declined by 11bps MoM/225bps YoY to 8.7 percent and deposit rates were down by 1bp MoM/142bps YoY to 3.5 percent.

For 1HFY16, Pakistan posted a current account deficit of US$1.3bn (0.9 percent of GDP) against a deficit of US$2.5bn (1.8 percent) in the same period last year. 9 percent reduction in trade balance to US$9bn and 6 percent increase in remittances to US$9.7bn contributed to above improvement.

Market remained directionless during the week and ultimately closed in the red zone as the index shed 52pts (-0.2 percent WoW) to close at 30,949 pts as investors continued to follow movements in the regional and international markets. That said, some revival of interest in index heavyweight Oil & Gas sector was witnessed as value buyers jumped in, while cements also attracted some interest after impressive 1HFY16 result announcement by MLCF. Overall market participation also improved and remained tilted towards high market cap stocks as evident from 10 percent WoW uptick in average traded value to US$76mn. Major decliners during the week were (1) banks (-1.5 percent WoW in anticipation of further cut in policy rate in the upcoming MPS) and (2) chemicals (-2.2 percent WoW amidst weak profitability outlook of the fertilizer sector). Other highlights of the week were (1) reports of PSX pursuing strategic partnership with Shanghai bourse, (2) LSM expanding by 4.4 percent YoY in 5MFY16 and (3) approval of tax amnesty scheme and PIA bills by the National Assembly.

It is expected SBP to maintain interest rates at current levels of 6.0 percent (policy rate) and 6.5 percent (discount rate) in its Jan’16 Monetary Policy Statement (MPS). To note, recent surprise in Dec’15 CPI at 3.19 percent (street consensus: 3.6 percent-3.8 percent) coupled with fresh downtrend in oil prices (down 17 percentMoM-19 percentMoM) have given rise to expectations of a rate cut in upcoming MPS. However, given increasing concerns on potential devaluation in PKR/USD owing to continued pressure on CNY, we expect SBP to adopt a cautious approach and thus keep the policy rate unchanged.

External account of Pakistan continues to show signs of improvement as current account deficit (CAD) in 1HFY16 declined by 49 percentYoY to USD1.3bn (0.9 percent of GDP) compared to USD2.5bn (1.8 percent of GDP) in the corresponding period last year. The notable improvement in CAD can primarily be attributed to 12 percentYoY reduction in trade deficit in both goods and services account primarily due to 11 percentYoY decline in total import bill to USD23.7bn in 1HFY16. The surplus in financial account further improved by 14 percentYoY to USD3.0bn in 1HFY16 primarily due to higher loan disbursements from various multilateral agencies.