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Weekly Stock Market Commentary September 22, 2018 Sajjad Anwar, CFA PTI-led government, after taking gas price hike decision, tabled a supplementary budget in the Parliament that aims to rein in the burgeoning fiscal deficit by mobilizing additional revenues together with scaling down the development outlays. The budget aims to raise an additional revenue of PKR180 billion, which will be equally generated from improved administrative tax measures & oversight and from new revenue measures, which include rationalization of income tax rates of individuals and AoPs, broadening and deepening of duties on imported non-essential goods, raising taxes on locally manufactured cigarette/tobacco. Further to this, the government has also proposed to slash the development outlay from budgeted amount of PKR1,030 billion to PKR750 billion. The market responded positively to the above policy move and closed the day with a gain of around 718 points (1.8%). Hype of sizable financial support in the form of loan/deferred oil payment facility/ aid from Saudi Arabia to be announced during PM Imran Khan’s two days visit also sparked some positivity at the local bourse. Overall, the benchmark KSE 100 Index rose by 1% during the holiday shortened outgoing week. Pakistan has invited Saudi Arabia to become a third partner in CPEC. In the domestic politics, ousted prime minister Nawaz Sharif, his daughter, and son-in-law, were released from Adiala jail on Wednesday after the Islamabad High Court suspended their respective prison sentences in the Avenfield corruption reference. On the global economic front, China threated to impose levies on $ 60 billion of US goods as the US President slapped tariffs on $200 billion worth of imports from China. Some calm and stability has returned following the intense sell-off of emerging market assets over the past few weeks amid some policy actions from the troubled economies such as Argentina’s central bank hiked rates to 60% and Turkey’s central bank hiked interest rate by 6.25% to 24%. As we see it, the increase in gas prices and fresh levies on the imported goods would stoke inflationary pressure and necessitate upward adjustments in the interest rates. While these policy actions would provide some relief, these are not adequate to address the multifaceted challenges facing economy. However, we believe that amid large foreign loan payments coupled with unsustainably high current account deficit, the government would be hard pressed to approach the IMF for a bailout package with associated tough conditionalities such as currency devaluation, interest rate hikes, rationalization of government expenditures, broadening of tax base, privatization/restructuring of loss-making PSE, and improving governance. These policy steps could weigh on economic growth that might impact corporate profitability. Going forward, we may witness outsized moves in the stock market driven by developments on the domestic policy fronts and shifting geopolitics. However, given attractive valuations as captured in the forward Price-to-Earnings multiple of 8.6 times and a decent double-digit corporate earnings growth expected for FY19 & FY20, we hold positive view on the stock market. Moreover, we expect foreign portfolio inflow to resume in the due course of time after this economic adjustment period. NBP FUNDS Managing Your Savings Rated by PACRA AM1 Disclaimer: This publication is for informational purposes only and nothing herein should be construed as a solicitation, recommendation or an offer to buy or sell any fund. All investments in mutual funds are subject to market risks. Past performance is not necessarily indicative of future results. Please read the Offering Documents to understand the investment policies and the risks involved.

Sajjad Anwar, CFA€¦ · Sajjad Anwar, CFA PTI-led government, after taking gas price hike decision, tabled a supplementary budget in the Parliament that aims to rein in the burgeoning

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Page 1: Sajjad Anwar, CFA€¦ · Sajjad Anwar, CFA PTI-led government, after taking gas price hike decision, tabled a supplementary budget in the Parliament that aims to rein in the burgeoning

Weekly Stock Market Commentary September 22, 2018

Sajjad Anwar, CFA

PTI-led government, after taking gas price hike decision, tabled a supplementary budget in the Parliament that aims to rein in the burgeoning �scal de�cit by mobilizing additional revenues together with scaling down the development outlays. The budget aims to raise an additional revenue of PKR180 billion, which will be equally generated from improved administrative tax measures & oversight and from new revenue measures, which include rationalization of income tax rates of individuals and AoPs, broadening and deepening of duties on imported non-essential goods, raising taxes on locally manufactured cigarette/tobacco. Further to this, the government has also proposed to slash the development outlay from budgeted amount of PKR1,030 billion to PKR750 billion. The market responded positively to the above policy move and closed the day with a gain of around 718 points (1.8%). Hype of sizable �nancial support in the form of loan/deferred oil payment facility/ aid from Saudi Arabia to be announced during PM Imran Khan’s two days visit also sparked some positivity at the local bourse. Overall, the benchmark KSE 100 Index rose by 1% during the holiday shortened outgoing week.

Pakistan has invited Saudi Arabia to become a third partner in CPEC. In the domestic politics, ousted prime minister Nawaz Sharif, his daughter, and son-in-law, were released from Adiala jail on Wednesday after the Islamabad High Court suspended their respective prison sentences in the Aven�eld corruption reference. On the global economic front, China threated to impose levies on $ 60 billion of US goods as the US President slapped tariffs on $200 billion worth of imports from China. Some calm and stability has returned following the intense sell-off of emerging market assets over the past few weeks amid some policy actions from the troubled economies such as Argentina’s central bank hiked rates to 60% and Turkey’s central bank hiked interest rate by 6.25% to 24%.

As we see it, the increase in gas prices and fresh levies on the imported goods would stoke in�ationary pressure and necessitate upward adjustments in the interest rates. While these policy actions would provide some relief, these are not adequate to address the multifaceted challenges facing economy. However, we believe that amid large foreign loan payments coupled with unsustainably high current account de�cit, the government would be hard pressed to approach the IMF for a bailout package with associated tough conditionalities such as currency devaluation, interest rate hikes, rationalization of government expenditures, broadening of tax base, privatization/restructuring of loss-making PSE, and improving governance. These policy steps could weigh on economic growth that might impact corporate pro�tability.

Going forward, we may witness outsized moves in the stock market driven by developments on the domestic policy fronts and shifting geopolitics. However, given attractive valuations as captured in the forward Price-to-Earnings multiple of 8.6 times and a decent double-digit corporate earnings growth expected for FY19 & FY20, we hold positive view on the stock market. Moreover, we expect foreign portfolio in�ow to resume in the due course of time after this economic adjustment period.

NBP FUNDSManaging Your Savings

Rated by PACRAAM1

Disclaimer: This publication is for informational purposes only and nothing herein should be construed as a solicitation, recommendation or an offer to buy or sell any fund. All investments in mutual funds are subject to market risks. Past performance is not necessarily indicative of future results. Please read the Offering Documents to understand the investment policies and the risks involved.

Page 2: Sajjad Anwar, CFA€¦ · Sajjad Anwar, CFA PTI-led government, after taking gas price hike decision, tabled a supplementary budget in the Parliament that aims to rein in the burgeoning

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