KSE volume at 166-month low in Nov; CPI inflation declines
LAHORE - The CPI inflation unexpectedly fell to 10.19 per cent in the month of November, down from the last months figure of 10.97 percent, while the turnover at the local bourse hit 166-month low.
According to financial experts, this happened after 23 months, as last time such a low inflation was seen in December, 2009.
On monthly basis, inflation number after a gap of five months came below 1 percent to stand around 0.3 percent, while 5MFY12 CPI average stood at 11.1 percent, down 300bps as compared to 14.1 percent in the corresponding period last year. A financial expert Nauman Khan observed that the decline is primarily attributed to high base effect of last year along with effects of Eid and Sindh floods. He reiterated that FY12 inflation average would range between 11.5-12 percent, below the government target of 12 percent.
When the equity market is viewed, the KSE-100 declined by 2.8 percent in Nov, with average daily volumes plummeting by 51 percent MoM to 45 million shares ($27.2 million) lowest since Jan 1998. Experts believe the issues that kept investor participation lackluster include straining US-Pak relationship, global economic crises, worsening domestic politics and rapidly changing macro economic scenario. Eyeing these factors, the SBP also opted to keep discount rate intact at 12 percent despite some market participants expecting a 50bps cut. Nevertheless, the local bourse marginally outperformed the regional peers by 1 percent. Foreigners were net sellers worth $4 million, while Banks were dominant buyers ($8.5 million) among the local participants.
Post Nov 30, the local bourse trades at FY12E PE of 6.1x, which translates into a discount of 45 percent to the regional peers. However, we believe investor activity is unlikely to be broad based. Selective interest in banking stocks (particularly NBP & MCB) along with POL, PPL, APL, HUBCO and KAPCO can be witnessed owing to likely announcement of healthy payouts with their Dec-end results.
Politics was back in the limelight, as controversy surrounding a memo sent by Hussain Haqqani (axed Pak Ambassador to the US ), pending cases at the Supreme Court (e.g. NRO, rental power plants etc) and air strikes by NATO forces in Pakistan created uneasiness among investors.
CPI clocked in at 11 percent versus consensus expectations of 10.5 percent for Oct and C/A deficit widened by 187 percent YoY to $1.6 billion in 4MFY12, raising concerns on the macro economic front. Also, IMF termed outlook on Pakistan as 'challenging eyeing pressures on fiscal side, debt servicing and energy crisis. Keeping most of these factors in mind, the SBP maintained the discount rate at 12 percent in its policy statement on Nov 30th.
The Oil & Gas sector outperformed its peers owing to sizeable oil and gas discovery at Nashpa-2 along with expectation of another huge discovery in Zin block. The volatile news flows surrounding the fertilizer sectors gas supply issues dragged down the chemical sector by 10 percent. The banking sector also underperformed the index due to concerns over the rise of non performing loans (up by Rs38 billion in 3Q2011).
The KSE trades at an FY12E PE of 6.1x and offers impressive earnings and dividend yields of 16 percent and 7.9 percent, respectively. However, investor interest is unlikely to be broad based. In the near term, it is expect selective interest in MCB, NBP, POL, PPL, HUBCO and KAPCO on the back of expectation of healthy payouts with their Dec-end results.
Experts said that if last month is any indicator, then Pakistan s stock market was almost inactive. The lull period seen last month at local bourse was not observed since 1998. Volumes globally are thin since last few months, however the decline in volumes in Pakistan is a normal.
With investors not making any money in this calendar year as Index is down 4 percent (7 percent in US$) all major players prefer to remain on the sideline amid uncertainty in global markets, local political noise and the ongoing taxation issues. And as a result the volumes crashed in the month of November. Thus, once most liquid market of Asia is suffering from extra ordinary low volumes thereby making impossible to execute large orders.