Stocks Review: FATF, MSCI decisions to keep equities under pressure

Javed MirzaWeb Editor

26th Jun, 2021. 04:39 pm
Stocks Review: FATF, MSCI decisions to keep equities under pressure

KARACHI: The equity market is expected to depict a mixed-to-positive trend next week, amid Financial Action Task Force’s (FATF) announcement to keep Pakistan on the grey list, and the sectors that got major relief in the budget will remain in the limelight.

The outgoing week remained depressed, as investors’ were awaiting the outcome of the FATF decision.

“[The] exploration and production (E&P) scrips are expected to continue to perform well due to [the] higher international oil prices, government shelving divestment plan of Oil and Gas Development Company (OGDC) and Pakistan Petroleum Limited (PPL) and also deferring divestment of government shares in Mari Petroleum (MARI),” a report issued by Arif Habib Limited noted.

“However, a current account deficit of $632 million for May 2021 and [an] uptick in the Consumer Price Index (CPI) in the upcoming months, may dampen [the] investors sentiments.”

The week ended June 25, 2021 commenced on a negative note with the index shedding 226 points on Monday, amid economic uncertainty given the surge in the international oil prices along with the deprecation of the rupee, which is expected to push up inflationary readings in the upcoming months.

The KSE-100 shares index shed 1.3 per cent, or 635.31 points, to close the outgoing week at 47,603.36 points. The KSE-30 shares index shed 1.6 per cent, or 311.97 points, to end at 19,113.68 points.

Foreigners offloaded stocks worth $7.88 million, compared with the net selling of $6.76 million last week. That said, average daily volumes declined 34 per cent to 694 million shares/day, and the value of traded securities went down 35 per cent to $112 million.

Ali Zaidi at JS Global Capital said that the KSE-100 index lost 1.3 per cent during the rollover week.
“In a latest development, it has been proposed that Pakistan be reclassified to MSCI Frontier Markets.

On the economic front, talks between Pakistan and the IMF [International Monetary Fund] are still underway but both parties seem hopeful of reaching an agreement soon. Moreover, Pakistan has reportedly secured a $4.5 billion three-year financing facility for the import of crude oil, petroleum products and liquefied natural gas.”

“Meanwhile, a power crisis looms ahead as a final decision on the dry-docking of the LNG vessel is still awaited. Over the week, the Sui Southern Gas Company (SSGC) suspended gas supply to the industrial units and compressed natural gas (CNG) stations to ensure supply to the domestic sector.”

MSCI is consulting to attempt reclassification of MSCI Pakistan from Emerging to Frontier Markets, effective in the Semi-Annual Index Review (SAIR) in November 2021.

Pakistan has witnessed negligible active interest from the Emerging Market players, holding an extremely low weight of 0.02 per cent.

“The reclassification to [the] Frontier Markets will entail outflows of passive investments of nearly $101 million as per our estimates; Lucky Cement (LUCK) ($46 million), Habib Bank (HBL) ($29 million) and MCB Bank ($26 million). Upon approval, this will formally come into play in November 2021 and a proposed weight of 2.3 per cent (index capitalisation of $2.03 billion) and inclusion of OGDC back to the MSCI Pakistan Index,” Wajid Rizvi at KASB Securities said.

Pakistan was part of the MSCI EM Index between 1994 and 2008; however, due to a freeze in the trading at the exchange in 2008, the MSCI removed it from the index to reclassify as a “standalone country index”. Later in May 2009, Pakistan was made a part of the Frontier Markets Index.

Post-May 2009 inclusion in the Frontier Markets where Pakistan attracted $205 million during May-December 2009 and witnessed inflows of $530 million in 2010.

“It may sound too good to be true as [the] stock market valuations had become extremely attractive owing to the earlier freeze but it surely carries a similar notion, in our view,” Rizvi added.

The KSE-100 is currently trading at a PER of 6.8x (2021), compared with the Asia Pacific regional average of 16.5x, while offering a dividend yield of 6.9 per cent versus 2.3 per cent offered by the region.

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