The Karachi Stock Exchange (KSE) experienced an extraordinary surge in April 2020, recording an impressive increase of 4,880 points. This translates into a return of +16.7 percent Month-on-Month (MoM) and +21.5 percent in USD terms, marking the best-performing month since March 2009.
Analysts at Arif Habib Limited reported that this surge in the KSE in April contributed to a cumulative return of -16.3 percent (USD based -19.0 percent) for the Calendar Year 2020 To Date (CY20TD) and +0.6 percent (USD +0.5 percent) for the Fiscal Year 2020 To Date (FY20TD).
Several key developments during the last month played a crucial role in driving the market’s performance. These include a surprise cut of 200 basis points from the State Bank of Pakistan (SBP) in response to the prevailing COVID-19 pandemic, coupled with the approval of a Rapid Financing Instrument of USD 1.4 billion by the International Monetary Fund (IMF) to meet immediate external and fiscal requirements.
The domestic bourse commenced on a bullish note, buoyed by a range of measures announced by the federal government to mitigate the economic impact of COVID-19. Additionally, the government announced a much-anticipated construction package to support cement and allied industries. The historic agreement of a 10 million barrels per day oil cut by OPEC+ effective from May 1, 2020, also played a significant role in shaping market sentiments.
However, the latter part of the month saw unprecedented turmoil in oil prices as they traded negatively for the first time in history. This situation emerged due to the lack of physical storage at Cushing, Oklahoma, US, combined with a drastic reduction in oil demand. The West Texas Intermediate (WTI) May’20 contract, set to expire on April 20, 2020, plunged to -37 USD per barrel during the day.
Amid the ongoing COVID-19 challenges, the incumbent government has gradually shifted towards implementing a smart lockdown to address potential economic fallout. Essential services have resumed operations, and construction-related sectors are functional with specific Standard Operating Procedures (SOPs) in place across the country.
Regarding economic indicators, the Current Account Deficit (CAD) for March 2020 dropped to USD 6 million, a significant decline from USD 823 million in March 2019. This reduction in CAD was driven by a 20 percent Year-on-Year (YoY) decline in total imports, along with a 9 percent YoY rise in remittances during March 2020.
However, total exports also saw a 12 percent YoY decrease in March 2020. For the first nine months of the current fiscal year, CAD decreased by 73 percent YoY to USD 2,768 million, thanks to a 31 percent YoY reduction in the trade deficit.
Remittances from overseas Pakistanis showed a 9 percent YoY increase to USD 1,894 million during March 2020, compared to USD 1,734 million in March 2019. The country-wise breakdown revealed inflows from KSA, UAE, USA, and the UK, amounting to USD 452 million (+11 percent YoY, +7 percent MoM), USD 420 million (+11 percent YoY, +9 percent MoM), USD 352 million (+36 percent YoY, +6 percent MoM), and USD 249 million (-12 percent YoY, -2 percent MoM), respectively.
Foreign Direct Investment (FDI) during March 2020 was USD 279 million, compared to net inflows of USD 145 million in March 2019. Over the first nine months of FY20, FDI witnessed a remarkable increase of 137 percent YoY to USD 2,148 million. China emerged as the largest investor with net FDI of USD 872 million during this period, compared to USD 22 million in the same period last year.
Norway was the second-largest investor, with net FDI of USD 289 million during 9MFY20, compared to net investment of USD 6.4 million in the corresponding period last year. The Power sector attracted the most significant investments during 9MFY20, amounting to USD 757 million, followed by the Communications Sector (USD 490 million) and the Oil & Gas Sector (USD 218 million).
