LAHORE - The week ended on a negative tone at the Pakistan Stock Exchange, with the KSE 100-index closing down 0.8 percent WoW at 40,998 points.

Although there was hype created in the previous week regarding a major inflow from KSA, news this week negated rumours, where the announced grants are substantially smaller and in connection to CPEC, which blunted any positive vibes in market sentiment. The week saw continued foreign selling, where net selling stood at $9.1m, while pressure was also felt from this being the futures rollover week. Moreover, the SBP announced the date of the MPS (September 29th) where the market was rife with speculations of a 50bps-100bps increase in the policy rate. It will be interesting how the new government tackles the situation, i.e. opting for a much needed rate hike amid rising inflationary pressures or a lower increase to keep cost do doing business at feasible levels.

Market volumes suffered, down by 21 percent WoW to 124mn shares/day, while average value traded experienced a similar slump of 18 percent WoW. Among key sectors, banks (up 1.1 percent WoW) rallied on news of the upcoming MPS, while E&Ps (up 1.1 percent WoW) stood out on the back of 2 percent WoW increase in crude oil prices. Cements (down 2.7 percent WoW) underperformed the index, despite news of a price increase this week, while the axe fell on autos (down 6.6 percent WoW) as the Senate Standing Committee chose to reject the government's proposal to lift the ban on non-filers of tax returns against purchase of new cars.

Experts said that while Current Account Deficit (CAD) for the month of Aug 2018 turned out to be surprisingly low ($600m, down 72 percent MoM), it failed to entice market during the week. This is because investors remained wary over lack of clarity from the new govt over managing external account situation as Pakistan has yet to decide about the entry into another IMF bailout. Further, State Bank of Pakistan (SBP) dollar reserves were down $293m WoW to $9b as of Sep 19, 2018.

Fertilizer and chemical sectors remained under pressure, cumulatively pulling the index down by 210pts amid announcement of higher gas prices and anticipated increase in electricity prices. Cement sector gained 113pts as investors flocked to get hold of cement stocks on rumors of increase in cement prices.

Foreigners sold $9.4m worth of shares during the week vs net selling of $12.6m last week (three sessions due to religious holidays). On local front, insurance companies and mutual funds were net buyers amounting to $8.6m and $4.0m, respectively.