Confused sentiments at PSX as index drops 1.4pc in week

The benchmark KSE-100 index closed on the last trading day of the week at 41,388.88 points, with an increase of +21.5 (+0.05 per cent) as compared to Thursday’s trading session.

During the trading week, the index shed a total of 615.21 points. Market capitalization witnessed a weekly decrease of -1.58 per cent and stood at $62.29 billion, while the average daily turnover also saw a weekly decrease of -39.03 per cent, standing at 196.51 million shares.

The top volume leaders for the week included Bank of Punjab (BOP) with 142.93 million shares, Pak Elektron Limited (PAEL) with 94.36 million shares, TRG Pakistan Limited (TRG) with 90.6 million shares, Lotte Chemicals (LOTCHEM) with 82.04 million shares and Engro Polymers and Chemicals Limited (EPCL) with 71.97 million shares.

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The benchmark index on Friday saw sentiments of day trading as investors took advantage of correction prices coupled with the bullish trend in the Asian markets due to the rally seen at the Wall Street after election results. Foreign investors still remained net sellers with outflows of $9.43 million shares, a decrease of -25.2 per cent from the previous week.

The mixed sentiments during the trading week were due to a number of reasons. First, it is still unclear if China will agree to a financial assistance package to Pakistan. Although the finance minister claims that the balance of payment crisis is over, it is clearly not. China, on the other hand, will not give Pakistan funds without proper negotiations and knowing when, where and with what strategy they would be used. According to news, a top-level delegation is on a visit to China for negotiations on the financial assistance package.

The IMF delegation is currently in Islamabad to negotiate with the finance ministry on the bailout package. After the package is announced, the investor sentiment is set to revive as hopes for a reduced pressure on the balance of payments and reserves is expected.

A major development expected is the MSCI emerging market annual review on November 13. If Pakistan is excluded from the index, it will dent the investor sentiment. This review plays a very important role in determining where the Pakistan stock market will be going in the coming years. It was the inclusion in emerging market index that the KSE-100 outperformed in May 2017, as inflows in PSX increased substantially.

Also, the declining international oil prices affected the oil and gas sector. With both brent crude oil (-4.27 per cent) WoW and WTI Crude (-4.42 per cent) WoW declining. With oil and gas sector having the highest weightage in the EM Index and the projected declining profit margins expected due to lower oil prices, the selling pressure is expected from foreign sellers as well as local investors.

Going forward, if Pakistan successfully negotiates the IMF bailout, it is highly likely that the road for more financial assistance will be paved. The Asian Development Bank is willing to invest $400 million in Pakistan infrastructure bonds, which have a duration of 10 years. Moreover, ease of expected inflows in the country will sustain bullish trends in this case.

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Mujtaba Jawad
The writer is a CFA Level 3 Candidate and holds a bachelors degree in Accounting & Finance from Lahore School Of Economics (LSE).
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