Kashmir issue, US-China trade dispute continue to limit PSX gains

Any increase in tensions between Pakistan and India over Kashmir issue will further fan geopolitical concerns and cap market gains in week ahead, analysts said.

Equities remained highly volatile in the previous week due to various reasons. Spike in Pakistan-India tensions at line of control after India revoked article 370, uncertainty in global markets due to China-US trade war and volatility in international oil prices led bears to dominate the market.

The Pakistan Stock Exchange (PSX) benchmark KSE-100 index shed over 5 percent after posting gain of 9 percent during the corresponding week. The market lost 1,677 points, down 5.4 percent to close at 29,672 points.

The index closed negative for seventh consecutive month and lost 6.8 percent during August 2019 which is also a worst monthly decline in the current year.

Foreigners were net sellers with major selling in E&Ps and fertilizer shares. E&Ps, commercial banks and oil marketing companies remained main contributors to the index decline cumulatively shedding 1,080 points. Based on NCCPL data, foreigners offloaded stocks worth $3.52 million during the week.

Activity declined compared to last week with a daily average of 124 million shares traded as compared to 174 million shares traded daily last week.

Foreign buying remained at $970,000 compared to a net sell of $ 4.97 million last week. Buying was witnessed in commercial banks ($2.5million) and technology and communication ($1.0 million).

On the domestic front, major selling was reported by Mutual Funds ($13.5 million), however Individuals remained net buyers of $ 7.8 million.

The GIDC amendment was taken positively, especially for fertilizer companies. OGDC also announced a discovery in Kohat which was also mildly positive for OGDC. Moreover, Asian Development Bank announcement of $7.5 billion assistance for Pakistan over the next three years also came as positive news.

An analyst at Habib Metro-Financial Service said the market expects PSX to underperform with range-bound trading sessions amid lack of triggers and concerns on the Kashmir issue.

“Therefore, staying on the sidelines with ample liquidity for value hunting in blue-chip stocks is a wise strategy.”

Another analyst from at BMA Capital Management said any positive development on FATF meeting, due in Bangkok on September 5, 2019, may provide boost to investor sentiments. “With the end of the futures roll over week, pressure on the market may subside going forward. Furthermore, financial results of June year end companies’ remains pending and investor attention may also remain captivated by the same in the coming weeks.”

The analyst said the market is expected to remain positive in the upcoming weeks since valuations have opened up to attractive levels.

“Moreover, the government intends to issue Rs 200 billion sukuks so as to address problems of power sector. Any development in this regard will serve as a positive trigger for the market.”