The Abacus Prompt - February 2018 Issue

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Stock Market

  • KSE-100 index closed at 43,239pts, down1.8% MoM, primarily owing to the inclusion of Pakistan in FATF watch-list starting June 2018, despite extensive diplomatic efforts to avoid the same. Graph February 18
  • Political uncertainty in the lead up to the senate elections have contributed to the monthly decline of stock market.
  • Other contributors to the muted performance of the market included event based negativity in key sectors,(e.g. increase in minimum pension amount to PKR 8000 per month for bank retirees by SC and imposition of windfall levy on certain licenses in Oil & Gas sector) as well as unabated foreign selling(outflow of USD 32.1mn in Feb'18).
  • The average daily volume decreased significantly by 66.7% MoM to ~80mn shares.
  • KSE 100 currently has a P/E multiple of 8.42, indicating the market is trading at a significant discount to regional economies.

Currency MarketsCurrency February 18

  • USD’s upbeat performance was due to the Fed’s positive outlook of US economy, and speculations of interest rate hikes in March 2018.
  • GBP slipped against Euro and USD after PM May called for a deep partnership with the EU post-Brexit, but failed to convince investors that a transition deal with the bloc was assured.
  • • CNY witnessed a slight decline against USD and PKR, however the currency has appreciated by 5 –6% against the greenback since May 2017’s announcement by China not to forcefully keep the exchange rate in check.
  • SAR and AED both appreciated by 0.13% MoM matching increase of USD against PKR, and is explained by the fact that both currencies remain pegged to USD.

Commodity Markets

  • Local and international gold prices declined by 2% owing to US Fed’s announcement of 4 interest rate hikes during the year. Silver prices decreased by nearly 4.8% MoM, in line with international prices.
  • Decline in WTI crude oil price during Feb owing to the announcement by non-OPEC members to increase supply by 1.66 million bpd against reduction announced by OPEC. Commodity February 18
  • The prices of HSD and Motor Spirit increased in the local market, and the GoP did not pass the decline in global crude prices to Pakistani consumers during the month.
  • Total cement dispatches were recorded at 3.78mn tons in February, down 7.43% MoM and up 10% YoY. Local dispatches were 3.48mn tons, down 6.88% MoM and up 9.4% YoY. With elections drawing close, it is expected that total dispatch growth shall remain strong owing to PSDP and ADP spending and impressive growth in private construction activity.
  • Cotton prices increased by about 1.5% MoM due to strong demand as the current season near its end.
  • Urea prices observed a slight increase of 0.4% MoM, moving forward the upward trend in local product prices is set to continue.

News Highlights

  • The Executive Committee of National Economic Council approved development projects worth over PKR 166 billion for various sectors.
  • The National Assembly Standing Committee on Commerce and Textile and Ministry of Finance has proposed projects amounting to around PKR 20 billion PKR 17.05 billion respectively.
  • Despite over 110% surge in FDI from China, overall FDI fell by 3% during the first seven months (July-Jan) of this fiscal year (FY18).
  • Pakistan has been given 3 months to avoid being added to a list of countries deemed non- compliant with anti-money laundering and terrorist financing regulations by the Financial Action Task Force (FATF), a measure that officials fear could hurt its economy.