Banking sector leads stock market plunge of 5.6 per cent last week

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THE NATION, LAHORE, 07th OCTOBER 2013:- State Bank of Pakistan’s surprise decision last Friday, to increase banks’ minimum deposit rate on savings accounts to 6.5% from 6.0% created havoc on the first trading day of last week as the KSE-100 index fell sharply by 555 points (-2.5%). The market plunge was led by the banking sector which underperformed the market by 5.6% last week on the back of the anticipated contraction in spreads post SBP’s decision. Weak sentiment at the local bourse was exacerbated after national saving scheme (NSS) rates rose on average by 120-183bps.
However, positive news flows on account of 1) lower than expected September 2013 CPI inflation reading at 7.4% much awaited increase in cement prices (Rs10-15/bag) and progress on the privatization plan of the government boosted investor sentiment partially. Overall KSE-100 index still lost 301 points to close at the 22,086 level, down 1.3%WoW with average daily volumes of 149mn shares (-18%WoW).
Experts said that investor sentiments improved during the week after receiving 1st tranche of IMF loan. While pause on Syrian strike also brought relief in global equity markets. Moreover, expected increase in cement bag prices brought renewed buying interest in cement stocks. Going forward, key results from cements makers like Lucky and Kohat will drive the investors’ actions.
Experts said that as the probability of reversal in the FED’s stimulus seems increasingly imminent, they saw world’s emerging markets shattering to nerves, as a result. And, therefore, the previously most-flourishing Asia Pacific equities faced one of the biggest single-month falls during Aug – Emerging equities, particularly those with CADs, were battered the most as foreign funds withdrew big time causing a nosedive in domestic currencies against the greenback so far. However, Pak equities remained relatively calm in Aug, paralleling only average regional decline.
With the Aug close when almost all the regional equities were in red, KSE recorded decline parallel to regional average (-7.5% in USD term against Asia Pac average -7.6%), primarily due to local selling. Despite this, KSE100 still yielded a solid 22% Jan’13 to date, highest amongst peers, see table alongside. In PKR terms, KSE100 yielded 4.9% MoM and still a massive 31%. With the MoM decline in the market, KSE’s average traded value stood at USD 107mn, down 19.4% MoM, up 98% YoY with average volumes standing at 201m shares, down 20% MoM, up 29% YoY in Aug.
Once again, KSE has been one of the only two Asia Pac markets, after S. Korea, which not only kept foreign flows with it but also attracted additional bread in Aug, to the tune of USD 27m – almost same as last month’s (adjusted for one-off outflow of USD 141m for KAPCO deal). Cumulative inflows since Jan’13 now stands at USD 324mn (USD 47mn last year same period). That’s encouraging on part of Pak equities keeping in perspective huge outflows of USD 2.72bn from the Asia Pac region in Aug.
Market euphoria remained high primarily due to full-year corporate result season where most of the companies have so far announced healthy (surprising) cash payouts with the results while few remained on the down side.
Although a concern for the economy, PKR depreciation has largely been taken as positive since it benefits key market-driving sectors such as IPPs (USD- based return mechanism), Textiles (for improved exports), E&Ps (USD-based product pricing), Telecom (USD-based LDI earnings) and Chemicals (USD-denominated margins) while the situation stands mixed for Cements (fuel import cost v/s exports), and negative for OMCs (extended LC and timing difference between imported and actual pricing).

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