After declining by around 9% in the last 7 consecutive trading sessions, Pakistan’s Stock Market is expected to make a rebound as valuations remain attractive. Active investors are expected to take benefit of cheap valuations as Country’s Foreign Exchange reserves increases, trade deficit declines and Remittance inflows increases.
The benchmark KSE-100 Index has remained bearish throughout the previous few sessions, closing in at five years low level of 28,765 with an average traded volume of 53 million shares.
Reasons for Massive decline
During the month, limited foreigner’s activity was witnessed as net buy of $470k was done by foreigners in the market.
Whereas, massive selling of $17.1 million equivalent was witnessed from local Mutual Funds who have been on a selling spree since the start of the year. $3 million equivalent selling was also witnessed by Insurance Companies who cut back on losses to ensure positive return to policyholders.
At the moment, Banks, Brokers and Individual Investors remain sidelined from the market as numbers suggest their limited participation.
Changing Macroeconomics and Attractive Valuations
Rupee depreciation has started giving its benefits as the Trade deficit decreased by 29%YoY during the month of July-2019. The decrease in Trade Deficit is achieved owing to a 14% growth in exports and a 14.5% decline in imports.
This is expected to help ease down the Current Account Deficit in the backdrop of increased remittances, which reached $2 billion. Furthermore, lower Crude Oil Prices are also expected to provide support.
The heating up of trade war between US-China is expected to keep commodity prices lower which will ultimately benefit Pakistan’s economic position as it remains a net importer.
Changing Macroeconomic dynamics is expected to have a trickle-down impact on the Market as sentiments are expected to lift up.
Valuations remain attractive especially for the defensive sectors including Power, Banks and Fertilizers. Increased participation is expected from Banks and Financial Institutions.