The Abacus Prompt - June 2018 Issue

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Stock Market

  • The market ended at 41,910 pts in June 2018, a decrease of 2.2% MoM. Major reason for negative performance of the bourse was on account of balance of payment concerns tagged with uncertainty with respect to the FATF meeting and another round of foreign selling.Graph-june18
  • Furthermore, Moodys changing the Pakistan outlook to ‘negative’ from ‘stable’ and World Bank cutting GDP growth projection to 5% led to a negative index performance for June 2018.
  • Average volumes during the month went by 20% MoM to 162mn shares along with average daily valued traded at USD 83mn (up by 22% MoM).
  • Foreign selling persisted for another month at USD 74.0mn in June 2018 (May 2018: USD 73.2mn). Major outflows were witnessed in Commercial Banks, E&Ps(Oil and gas) Cements, Fertilizer and Power Generation.
  • KSE 100 currently has a P/E multiple of 8.32, indicating the market is trading at a significant discount to regional economies.
  • KSE 100 currently has a P/E multiple of 8.15, indicating the market is trading at a significant discount to regional economies.

Currency Markets

  • The PKR depreciated by ~5.17% during the month due to the mounting pressure on the external front with CAD expecting to end at USD 17.5 bn for FY18. Moreover due to USD shortage in the open market PKR further depreciated.Currency-june18
  • EUR appreciated against PKR and USD as European Union Leaders reached an agreement on migration to strengthen external borders. GBP gained against PKR due to better than expected first quarter economic growth.
  • CNY depreciated against USD due to rising trade tensions between the two largest economies.
  • SAR and AED appreciated by 5.17 MoM matching increase of USD against PKR, with both currencies being pegged to the USD.

Commodity Markets

  • International gold prices declined as USD appreciated against all major currencies because of US driven trade dispute with China. Local gold prices increased due to a stronger dollar.Commodity-june18
  • WTI Crude finished the month ~11.0% higher MoM, due to supply concerns as US sanctions on Iran could cause a large drop in crude exports from Iran.
  • Local prices of HSD and Motor Spirit increased by PKR 14 and PKR 7.54 for HSD due to the price hike in international oil prices and PKR depreciation against USD
  • Total cement dispatches were recorded at 2.98 mn tons in June, down by 24% MoM and up by 9% YoY. Of these local and export dispatches were 2.58 mn tons (87%) and 0.40 mn tons (13%) respectively. Local and export dispatches are up by 8% and 15% YoY respectively.
  • Cotton prices increased by ~1.3% due to the shortages of quality cotton as crops are affected due to pre-monsoon rains.
  • Urea prices increased by ~3.2% due to lack of clarity on cash subsidy scheme announced by the outgoing government. Moreover due to water shortage the Kharif crop sowing has been delayed.

News Highlights

  • The World Bank has agreed to provide USD 565 million to Pakistan to build modern water and power infrastructure.
  • The World Band is committing over half a billion dollars through two projects to support renewable energy in Sindh and expand economic activity between Pakistan and Afghanistan through the development of an economic corridor along the Khyber Pass.
  • Moody’s Investors Service has downgraded Pakistan’s rating to negative from stable. A statement released by the credit rating agency stated that the decision to change the outlook to negative was driven by heightened external vulnerability risk as ongoing because of payment pressures erode foreign exchange buffers.
  • Changan Automobiles China and Master Motors Ltd entered into a joint venture for the indigenization of local automobile industry with an investment of USD 100 million.