News Column

Celebratory mood at local bourse as first privatisation deal completed

June 16, 2014

Local bourse gained 0.75% on week-on-week basis after MQM ended protests, coupled with healthy foreign buying, successful government offering of UBL, and World Bank loan for dam construction. Sentiments were affected due to Karachi airport attack as volumes declined by 18% to 215mn shares (value dropped by 24% to Rs.10bn on avg).

Mari announced higher-than-expected production estimates from Ghauri field which brought renewed interest in MARI and PPL. Textile sector also remained in limelight in anticipation of favourable textile policy. News about Government transferring lands to PTC management also helped stock to post gains during the week. Going forward, road shows for next government offering and parliament discussions on budgetary measures will be eyed.

Stock market experts said that despite deterioration in the law and order situation of the city, the celebratory mood at the local bourse was evident as Pakistan completed itís first privatization deal in eight years via a secondary market offering of UBL. Meanwhile further impetus to market sentiment was on account of sector/stock specific news like (1) Pak government nearing a resolution to the property dispute with Etisalat (PTC outperformed the market by 4.1%WoW) and (2) World Bank approving the Dasu Dam project (positive for cements) and agreeing to give a loan of US$700mn.

Overall the benchmark KSE-100 Index rose by 0.8%WoW to close at 29,731. Market liquidity on the other hand was lower compared to last week as average volumes traded during the week dipped by 18%WoW to 216mn shares. On the macro front, (1) Pakistan ís Trade deficit shrunk by 5.66%YoY in 11MFY14 and (2) foreign exchange reserves rose by US$17.5mn to US$13.457bn.

Experts said that the month of May has historically been a dull period for Pakistani equities as over the past 10yr average return during the month has been at -2.5% vs 10yr average annual return of 26%.

Dullness in the market persists during May mainly because of Budget being right around the corner, which forces many investors wait for clarity before dipping their feet in the market A similar story has unfolded this year, with investors facing confusion regarding the upcoming changes in the CGT (Capital Gains Tax) rate and holding period.

However, these dynamics changed yesterday. With recently made changes to MSCI FM Index coming into effect at the end of May 30í14, foreigners flocked to the bourse to get their portfolios recalibrated in accordance with the upcoming changes to the index. This led to brisk activity at the bourse yesterday, which saw benchmark KSE-100 Index gaining stellar 556.26pts (1.92%). Following a 251 session high net foreign buy of ~US$16mn, the KSE-100 Index closed on its all time high of 29,543.58pts with both volumes and value reaching 30 sessions high of 351.3mn and US$158.9mn, respectively.

Though sentiments are seemingly restored unanswered questions regarding future of CGT, remain high on investorsí mind. In todayís report we make an effort to deduce what happened yesterday, how it will affect the marketís performance in the long term, how much foreigners actually bought and what they bought.

Around 15 companies that make up for Pakistanís 7.4% weight in MSCI FM Index cumulatively gained 2.3% yesterday, and in the process outshone the broader market by 40bps. In addition to this, contribution of these companies in markets upsurge of 556.25 was realized at 69% or 382.25 points. The Oil sector enjoyed $7.8m worth of net flows, which represents 47% of total inflow.

Amongst Oil sector we believe PSO enjoyed the highest inflow, followed by OGDC and PPL (rough workings suggest foreigners bought 1.2m PSO, 585k OGDC and 579k PPL shares). Following on, the Chemical and Construction sectors experienced net foreign buying of $2.9m each (17% of total flows). This is quite impressive for Construction Sector keeping in mind the sector has mere 6% weight amongst 15 Pakistani scrips in MSCI FM Index.

In Chemical sector, ENGRO is likely to have attracted highest inflow while LUCK remained on the buy list for Construction Sector. Conversely, banks despite their 28% weight amongst 15 Pakistani constituents of MSCI FM Index managed to attract only US$1.8mn or 11% of total net inflows. On the selling side local mutual funds remained on top with net sell of $7.0m followed by Individuals and Banks, as their net offloaded position were at $3.4m each.

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Source: Nation (Pakistan)

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