Stocks eyed to edge up as FATF angst ends

Stocks are widely hoped to find a heading after Pakistan’s grey list status quo and take a possible downgrade to frontier market by MSCI in a stride, dealers said.

Pakistan Stock Exchange’s (PSX) benchmark KSE-100 Shares Index closed the week at 47,603 points as against 48,238.67 points, declining 1.33 percent or 635 points over the last week.

“We expect the market to depict a mixed to positive trend in the upcoming week attributable to FATF’s announcement to keep Pakistan on grey list, and sectors that got major relief in the budget will remain in the limelight,” brokerage Arif Habib Ltd said in a report.

“On the other hand, energy stocks are expected to continue performing well due to higher international oil prices and government shelving divestment plan of OGDC and PPL and also deferring divestment of government shares in MARI.”

However, a current account deficit of $632 million for May 2021 and uptick in CPI (Consumer Price Index) in the upcoming months might dampen investor sentiments, the brokerage said.

Average daily volumes and traded value for the outgoing week were down by 34 percent and 35 percent to 694 million shares and $112 million, respectively.

Contribution to the downside was led by cements (212 points), commercial banks (178 points), oil and gas exploration companies (58 points), pharmaceuticals (53 points), and oil and gas marketing companies (51 points). Scrip-wise major losers were LUCK (118 points), TRG (62 points), MCB (60 points), PSO (45 points), and HBL (44 points). Whereas, scrip-wise major gainers were SYS (67 points), FCEPL (43 points), HUBC (38 points), ANL (34 points) and MTL (21 points).

During the week, trading commenced on a negative note with the index shedding 226 points on Monday amid economic uncertainty, given a surge in international oil price along with deprecation of rupee.

Pessimism at the bourse was further fueled by unavailability of gas to non-export related industries, petrol shortage at many fuel stations in Pakistan as oil tankers went on a countrywide strike which might affect business of exporters, proposal for reclassification of Pakistan from MSCI Emerging Market to Frontier Market, and uncertainty over the FATF plenary outcome led to profit taking by investors.

Foreigners offloaded stocks worth $7.88 million compared to a net sell of $6.76 million last week. Major selling was witnessed in all other sectors ($7.42 million) and commercial banks ($1.94 million).

On the local front, buying was reported by individuals ($13.71 million) followed by banks ($12.86 million).

Overnight intimation from MSCI regarding possible downgrade of Pakistan from MSCI Emerging Market Index to MSCI Frontier market Index, had investors perplexed on the upgrade of stocks in the recent MSCI review particularly LUCK and TRG, which were added to the Standard and Small index respectively.

According to KASB Research the reclassification to Frontier Market will entail outflows of passive investments of nearly $101 million as per their estimates.

Topline securities said that the impact of downgrade would likely be ‘Neutral to Positive’.

“MSCI will consult with market participants on this reclassification proposal until August 31, 2021 and the decision will be announced by September 7, 2021.”

“We estimate potential investment from passive FM funds to the tune of $150-200 million where $125-150 million are likely in the main constituents,” the Topline report said.