Morning Call about Turmoil in global equity markets

Karachi: Recovery in KSE will depend on Stocks with strong domestic footings

The KSE100 index rebounded yesterday, as the global indices recovered on the back of US Federal Reserve pledged to keep interest rates at its lowest level for next for years.

According to Arif Habib Limited, the benchmark index jumped by 2.5% yesterday to end the day at 11,311.29 levels. The KSE100 Index following regional indices had dropped by 9.5% (a decline of 1,155.5 index points) till August 09 2011, as foreign investor offloaded resulting in an outflow of USD 4.3mn during the period. This global turmoil was instigated by S&P lowering US rating from AAA to AA+ as its felt US decision to increase its debt ceiling and reduce deficit are below par. The major contributor to this decline were OGDC (-15.6%), MCB (-10.9%) NBP (-18.3%) as they pushed index lower by approximately 562 points.

Regional performance
Subsequent to S&P lowering of US rating, the global indices went for a free fall, declining across the board. During the period between August 1 to 10, 2011 major regional indices went down on average for more than 10%. The major loser was KOSPI (-17%) Index followed by Hang Seng and BSE Sensex Index which were down by 12% and 8%. KSE-100 Index on the other hand, suffered a decline of 7% during the period. Yesterday, European and US Indices went for a beating on European debt concerns, fears of France rating cut which later denied.

OGDC continues to be the major Index dampener
OGDC, though recovered yesterday by PKR 3.05/share, turned out to be the major Index dampener during this turmoil as it lost its vigour by PKR 24/share (15.6%) since July 29, 2011, contributing around (423 points) in the total fall of 9.5% by the KSE-100 Index. Furthermore MCB, NBP and PPL cumulatively pushed the index down by 188 points, which despite being sizeable, is nothing compared to that of OGDC; thus recovery of the Index, once again will heavily rely on the performance of OGDC. Arif Habib Limited believes that the Stock of OGDC will be in the limelight with its FY11 financial result around the corner.

FIPI registered a net selling of USD 9mn
After S&P down rated USA’s sovereign rating from AAA to AA+ international market witnessed a panic selling which subsequently led to an outflow of USD 11.9mn in last three trading days. Arif Habib Limited believes that the outflow will continue to be a spoiler for the local bourses as it has witnessed an outflow of USD 41mn since July 15, 2011.

The Stocks with strong domestic consumer base may be the safest bet
Arif Habib Limited is of the view that the market may feel the aftershocks of global markets with major fear of foreign selling keeping the KSE under pressure. However Arif Habib Limited believes that these dips should be taken as an opportunity to go long in stocks with heavy reliance on domestic consumption, which will shield them from fears of recession in European and US economies. Arif Habib Limited’s preferred list includes POL, PPL, OGDC, PSO, APL, HUBC, FFC, PTC, LUCK and ACPL.

Qadirpur gas field to remain close for one month

Karachi: The Qadirpur gas field would remain closed for one month from August 28 to September 27, 2011 on account of annual maintenance of the gas field.

According to Alfalah Securities Limited, Qadirpur gas field is the second largest gas field of the country having majority of the gas reserves, supplies up to 460 mmcfd gas to the Sui Southern Gas Pipeline (SNGP). Pakistan’s total gas requirement stands at around 6.50 bn cubic feet per day (bcfd) whereas, the current supply of gas stands at 4.0 bcfd depicting a shortage of 2.5 bcfd. The gas shortage is expected to further hike by 1 bcfd in winter. The closure of Qadirpur gas field for a month would result in a shortage of 460 mmcfd gas on the SNGP system which would affect the domestic, industrial, fertilizer and the CNG sectors.

T-Bill auction receives heavy participation

Karachi: T-bill auction was held on Wednesday, in which SBP accepted bids worth of PkR 181 bn with realized value PkR 163.86 bn.

According to Alfalah Securities Limited, The cut off yields of 3M, 6M and 12M T-bills stood at 13.0697%, 13.2787%, and 13.3768% respectively. These rates are revealed after the change in discount rate to 13.5% lower by 50bps in the recent monetary policy and are reflective of tight liquidity position prevailing in market.

Jul remittances surge by 38.57%- Alfalah Securities Limited

Karachi: Remittances for the month of July 2011 have risen to USD 1096.31 mn depicting an impressive growth of 38.57% last year.

According to Alfalah Securities Limited, The inflow of remittances were mainly contributed by Saudi Arabia, UAE, USA, UK, GCC countries (including Bahrain, Kuwait, Qatar and Oman) and EU countries to the tune of USD 291.8 mn, USD 257.6 mn, USD 198.9 mn, USD 118.5 mn, USD 116.5 mn and USD 32.59 mn respectively. The total remittances in FY11 stood at USD 11.2 bn having monthly average of USD 933 mn.

It is expected that the remittances from the USA, UK and EU countries to rise due to capital flight from the expatriate Pakistanis amid recessionary fears. However, rise in unemployment may have a negative effect on the remittances growth going forward.

Morning Briefing for August 11, 2011 – Standard Capital

Karachi: Financial turmoil evokes 2008 comparison

According to Standard Capital, Stocks are plummeting. The economy is slowing. Politicians are scrambling to find solutions but are mired in disagreement. Many Americans are wondering whether they are in for a repeat of the financial crisis of 2008. The answer is a matter of fierce debate among economists and market experts. Many say the risks are lower today — at least in terms of an immediate crisis — because the financial system over all is healthier and there are fewer hidden problems. But the experts add that there are reasons to worry, and they do not rule out a quick downward spiral if politicians in the United States and in Europe cannot calm investors by addressing fundamental financial threats. Most of the attention so far has been focused on volatility in stocks, with investors spooked by three heart‐stopping declines in the last five trading days — including Wednesday’s 4.6% drop in the Dow Jones industrial average. But the bigger concern of many financiers and government officials was signs of stress on Wednesday in European credit markets, which are essential to financing the day‐to‐day operations of banks and companies there.

Remittances maintained its pace rising 39% to $1.1b in July
The pace of increase in remittances showed no signs of easing as Pakistanis working abroad sent home US$1.1bn in July, which was higher by 38.57% or US$305.13mn when compared with US$791.18mn received during the same period last year, reveals data released by the State Bank of Pakistan (SBP). In FY11, remittances surged 26% to a record level of US$11.2bn. (Tribune) This may continue to rise in the month of August on account of Ramadan (expatriate sending more money to their families for the EID festival) and as well as FY12 figures may glow further as a result of efficient initiative by Pakistan Remittance Initiative (PRI) which helped boosting remittances figures by providing a formal channel. Moreover, recent riots in London may further add to these as Pakistani community living abroad may take cautious steps to repatriate their personal wealth. (Analyst: Zain Saleem)

Textile export to fall
Weak demand and higher output has depressed world cotton prices and will cost Pakistan more than US$1bn in key textile exports for the FY12, despite an expected bumper crop, industry officials said on Wednesday. Textiles and cotton account for nearly 60% of Pakistan’s exports and are a major source of foreign exchange for its fragile economy, kept afloat by an US$11bn International Monetary Fund loan secured in 2008. Despite severe losses to the cotton crop by 2010’s floods, the value of Pakistan’s textile exports in FY11 rose 35% to US$13.80bn from US$10.22bn the previous year, mainly because of globally high cotton prices. Pakistani manufacturers of ready‐made garments, valued at US$1.77bn in exports last year, fear exports will drop further, citing a significant fall in Christmas demand because of cotton price volatility and Pakistan’s chronic energy crisis making foreign buyers reluctant to place orders. Cotton prices, which doubled and peaked at US$2.27 per pound in the 1QFY11 on tight supplies and robust demand, have since fallen to less than half that level, where they remain.