managing your savings weekly stock market commentary ... · sajjad anwar, cfa during the week...

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Weekly Stock Market Commentary November 30, 2018 Sajjad Anwar, CFA During the week ending November 30th 2018, the benchmark KSE 100 Index was off by 0.9% whereas shariah compliant KMI 30 Index lost 2%, closing the month with a drop of 2.8% and 4.7%, respectively. Despite assurances by the policymakers, lack of clarity on a decisive plan for financing the large gap in external account with associated implications for inflation, interest rates, exchange rate, economic growth, and corporate profitability, continued to dent investors’ sentiments. Adding to the investors’ angst, negotiation between the government and the IMF for a bailout package hit an impasse reportedly due to differences on the conditions related to exchange rate and electricity & gas prices, and will now resume in January. Market expectations of further hike in interest rates as reflected in the rising sovereign yield in the secondary market also contributed to the lackluster performance of the stock market. Among the notable development in the markets, the State Bank of Pakistan in its bi-monthly monetary policy review meeting on November 30th surprised the market by increasing the discount rate by 1.5% to 10.5%, citing risks to the external account and rising actual inflation and inflation expectation. The global oil prices remained under pressure with the Brent Oil Future after hitting a low of USD 58.2 per barrel closed the week at USD 59.3 per barrel. Meanwhile, the SBP also loosened its grip on the currency as the rupee further devalued on Friday to 139 a dollar, the fifth time this year. In another development, contrary to the recommendation of Oil and Gas Regulatory Authority for increase in retail fuel prices, the government announced reduction in POL prices in the range of Rs. 2-5 per liter, citing the recent decline in global oil prices. Looking at the participant-wise activity during the week, unabated foreign selling was amplified by the MSCI related rebalancing as the net outflows were recorded at USD 51 million. Insurance Companies, Mutual Funds, and Individual Investors emerged as large buyers in the market, accumulating fresh position to the tune of USD 25 million, USD 12 million, and USD 6 million, respectively. As we have been writing lately, the recent policy measures such as monetary tightening and currency adjustments are steps in the right direction to address the imbalance in the external account. The PKR devaluation would discourage non-essential imports by making it expensive and help restore some export competitiveness. Similarly, high interest rates would help contain consumption led demand. That being said, in the short-run, these policy measures would lead to slowdown in economic growth and weigh on corporate probability. However, these policy actions augmented with genuine structural reforms would go a long way to bring self-sustaining high economic growth and durable financial stability. What is next? We may see some pressure at the local bourse as the market re-prices the above expected hike in the policy rates. However, given attractive valuations as captured in the Price-to-Earnings multiple of 8.2 and a healthy double-digit corporate earnings growth, we maintain our sanguine outlook on the stock market over the medium to long-term. We also expect foreign portfolio inflows to resume in the due course of time as the rupee attains its equilibrium value and the oversight of the IMF will resume post entry into the bailout package. NBP FUNDS Managing Your Savings Rated by PACRA AM1 Disclaimer: This publication is for informational purposes only and nothing herein should be construed as a solicitation, recommendation or an offer to buy or sell any fund. All investments in mutual funds are subject to market risks. Past performance is not necessarily indicative of future results. Please read the Offering Documents to understand the investment policies and the risks involved.

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Page 1: Managing Your Savings Weekly Stock Market Commentary ... · Sajjad Anwar, CFA During the week ending November 30th 2018, the benchmark KSE 100 Index was off by 0.9% whereas shariah

Weekly Stock Market Commentary November 30, 2018

Sajjad Anwar, CFA

During the week ending November 30th 2018, the benchmark KSE 100 Index was off by 0.9% whereas shariah compliant KMI 30 Index lost 2%, closing the month with a drop of 2.8% and 4.7%, respectively.

Despite assurances by the policymakers, lack of clarity on a decisive plan for �nancing the large gap in external account with associated implications for in�ation, interest rates, exchange rate, economic growth, and corporate pro�tability, continued to dent investors’ sentiments. Adding to the investors’ angst, negotiation between the government and the IMF for a bailout package hit an impasse reportedly due to differences on the conditions related to exchange rate and electricity & gas prices, and will now resume in January. Market expectations of further hike in interest rates as re�ected in the rising sovereign yield in the secondary market also contributed to the lackluster performance of the stock market.

Among the notable development in the markets, the State Bank of Pakistan in its bi-monthly monetary policy review meeting on November 30th surprised the market by increasing the discount rate by 1.5% to 10.5%, citing risks to the external account and rising actual in�ation and in�ation expectation. The global oil prices remained under pressure with the Brent Oil Future after hitting a low of USD 58.2 per barrel closed the week at USD 59.3 per barrel. Meanwhile, the SBP also loosened its grip on the currency as the rupee further devalued on Friday to 139 a dollar, the �fth time this year. In another development, contrary to the recommendation of Oil and Gas Regulatory Authority for increase in retail fuel prices, the government announced reduction in POL prices in the range of Rs. 2-5 per liter, citing the recent decline in global oil prices.

Looking at the participant-wise activity during the week, unabated foreign selling was ampli�ed by the MSCI related rebalancing as the net out�ows were recorded at USD 51 million. Insurance Companies, Mutual Funds, and Individual Investors emerged as large buyers in the market, accumulating fresh position to the tune of USD 25 million, USD 12 million, and USD 6 million, respectively.

As we have been writing lately, the recent policy measures such as monetary tightening and currency adjustments are steps in the right direction to address the imbalance in the external account. The PKR devaluation would discourage non-essential imports by making it expensive and help restore some export competitiveness. Similarly, high interest rates would help contain consumption led demand. That being said, in the short-run, these policy measures would lead to slowdown in economic growth and weigh on corporate probability. However, these policy actions augmented with genuine structural reforms would go a long way to bring self-sustaining high economic growth and durable �nancial stability.

What is next? We may see some pressure at the local bourse as the market re-prices the above expected hike in the policy rates. However, given attractive valuations as captured in the Price-to-Earnings multiple of 8.2 and a healthy double-digit corporate earnings growth, we maintain our sanguine outlook on the stock market over the medium to long-term. We also expect foreign portfolio in�ows to resume in the due course of time as the rupee attains its equilibrium value and the oversight of the IMF will resume post entry into the bailout package.

NBP FUNDSManaging Your Savings

Rated by PACRAAM1

Disclaimer: This publication is for informational purposes only and nothing herein should be construed as a solicitation, recommendation or an offer to buy or sell any fund. All investments in mutual funds are subject to market risks. Past performance is not necessarily indicative of future results. Please read the Offering Documents to understand the investment policies and the risks involved.

Page 2: Managing Your Savings Weekly Stock Market Commentary ... · Sajjad Anwar, CFA During the week ending November 30th 2018, the benchmark KSE 100 Index was off by 0.9% whereas shariah

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