KARACHI: Investors in the Pakistan Stock Exchange (PSX) are gearing up for a week of careful observation, as the market remains sensitive to unfolding political and economic situations.
Analysts at Arif Habib Limited suggest that, given the developments on both fronts, the market is expected to maintain a range-bound trajectory.
While economic concerns persist, analysts believe that the market will closely monitor external developments, particularly any potential inflows from bilateral/multilateral financial institutions or friendly countries. Positive momentum could be triggered by financial support from external sources.
The benchmark KSE-100 index of the PSX is currently trading at a Price-to-Earnings Ratio (PER) of 4.0x (2023), significantly lower than the Asia Pacific regional average of 12.8x. Additionally, the market offers an attractive dividend yield of 10.2 percent, surpassing the regional average of 2.8 percent. These metrics indicate that the Pakistani stock market is undervalued and offers an appealing dividend yield in comparison to the broader region.
The market kicked off the week on a negative note, carrying over momentum from the previous week due to concerns over weak economic indicators. However, it briefly turned positive with the approval of a $554 million financial package by the Asian Development Bank (ADB) for rehabilitation work post-floods. The positive momentum continued with the International Monetary Fund (IMF) expressing satisfaction with the discussions related to the ninth review.
Despite these positive developments, the market turned negative again later in the week, attributed to an increase in political noise. Remittances also registered a decline of 14 percent YoY in November 2022, adding to economic concerns. Furthermore, the Large Scale Manufacturing Index (LSMI) output plummeted by 3.6 percent MoM and 7.75 percent YoY during October 2022.
Official foreign exchange reserves of the State Bank of Pakistan (SBP) showed a dip of $15 million, settling at $6.64 billion. The Pakistani Rupee (PKR) depreciated by PKR 0.54 | 0.24 percent WoW against the dollar, closing at PKR 224.94.
The PSX index closed at 41,301 points, losing 397 points (down by 0.95 percent) WoW. Sector-wise negative contributions came from Banks, Chemical, Automobile Assembler, Power, and Food and Personal Care Products. On the positive side, the sectors contributing included Miscellaneous and Fertilizer.
Scrip-wise negative contributors included MTL, UBL, HUBC, BAHL, and LOTCHEM, while PSEL, SYS, ENGRO, PAKT, and OGDC were among the positive contributors.
Foreign selling persisted during the week, totaling $9.6 million compared to a net sell of $6.3 million in the previous week. Major selling was witnessed in Commercial Banks and Cement. On the local front, buying was reported by Banks/DFIs followed by Companies. Average volumes reached 162 million shares (down by 10 percent WoW), with the average value traded settling at $20 million (up by 10 percent WoW).
The upcoming week promises to be a critical period for investors as they navigate the dynamic landscape influenced by political and economic developments. The cautious stance in response to these factors will likely continue, with investors carefully evaluating their positions against the backdrop of evolving situations both domestically and globally.