KARACHI: The Pakistan Stock Exchange (PSX) witnessed a bloodbath during the outgoing week, which saw the KSE-100 index record the highest-ever weekly loss of 4,082 points, providing negative return of 7.75 per cent for the week to close at 48,555 points.

Following a relentless climb and crossing over several ‘highest ever’ levels, the index on reaching 53,000 points intraday was already dangling at the edge of the cliff.

The budget 2017-18 with its increased tax on dividends and 15pc flat rate of Capital Gains Tax gave the shove, which came to a push on the eve of the transition where PSX changed from MSCI Frontier Market (FM) to MSCI Emerging Market (EM) index on June 01. Proving all estimates wrong, instead of the expected heavy inflows from passive EM funds/ investors of around $450m on May 31, the last day in the FM before its transition to EM, outflows of foreign frontier market overwhelmed the inflows resulting in net outflow of $81m at the end of the day.

For a week ahead of Pakistan’s upgrade to the MSCI FM, investors were accumulating index heavy stocks, particularly the six, which were selected for inclusion in the MSCI Index, UBL, HBL, Lucky Cement, OGDC, MCB Bank and Engro Corporation. Investors hoped to sell them to EM foreign funds/investors at higher rates.

However, their hopes were dashed to dust as HBL lost 14.44pc, OGDC 11.36pc, LUCK 14.06pc, UBL 13.32pc, MCB 13.10pc and ENGRO 9.52pc during the week, taking away 1,756 points from the benchmark index.

Investors are advised to remain cautious

Foreigners sold $149.5m worth of stocks during the week as against buying of $6.5m the previous week. Foreign sell-off was markedly higher in banks ($65.3m), cements ($48.9m) and fertiliser ($28.0mn), while foreigners bought $7.1m worth of power shares.

The market’s troubles were exacerbated as the flight of the foreigners from frontier market, starting May 31, triggered selling by local participants, particularly the mutual funds, nervous and week holders on likely rebalancing of portfolios.

Average daily volumes declined 27pc over the earlier week and stood at 294.84m shares, as the week’s activity was bloated due to trading in right shares.

Average traded value soared 25pc over the previous week to its decade high of $240.16m, as the activity was concentrated in the high priced, blue-chip stocks.

According to Topline Securities, the banks were the worst hit during the week with their capitalisation shrinking 10p week-over-week as HBL, UBL and MCB declined between 13 to 14pc eroding 1,154 points from the index.

It was followed by E&P’s drop of 9.4pc as OGDC and PPL took away 443 points. Cements shares lost 8.7pc as LUCK and DGKC shaved off 443 points. Fertilisers fell 7pc in the lead of ENGRO and DAWH, taking away 293 points from the index.

Key news flows during the week included: Hussain Nawaz appeared before the JIT, CPI based inflation in May’17 clocked in at 5.02pc (standing at 30-month high), government reduced the MOGAS/HSD prices by Rs1.2/1.6 per liter to Rs72.8/81.4/liter, Ministry of Finance reportedly agreeing to provide Rs45bn to IPPs and OMCs in lieu of circular debt and Lahore High Court reportedly dismissed petitions filed by commercial importers against the anti-dumping duty on flat steel products.

Outlook: Market pundits said that with Pakistan now formally part of MSCI EM index, short-term volatility was expected where the market was likely to be guided by foreign funds activity. Besides any development with regards to revised margin financing product (expected to be available by mid-June) along with Panamagate’s JIT proceedings were likely to drive sentiments. Investors were however advised to remain extremely cautious.

Published in Dawn, June 4th, 2017