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The KSE-100 index was flat WoW, up a meager 0.4%, closing at 32,970. The index recovered some lost ground in the last three trading sessions of the week, propelled by a surprise CPI of 1.3% in Sep-15. On a WoW basis, however, the index did not make sizable advance but merely recovered the points lost earlier in the week. Incidentally, global markets began to recover by the same time, which reflects foreign investor played a crucial role in lifting the local market.

Foreign institutional flows turned positive this week clocking in at US$0.221mn vs outflow of US$1.1mn last week. Volumes jumped significantly with ADTO rising 43% WoW to 178mn shares. However, the average daily value traded however fell 29% to US$39mn.

The government was able to successfully issue US$500mn 3-year Eurobond over the weekend. IMF Board approved the release of ninth tranche of US$505mn, as the government managed to get two waivers for its June-end targets, on budget deficit and government borrowing. Finally, US$375mn installment under coalition support fund was received by end of this week, shoring up the country's Forex reserves to over US$20bn (5.5-months of import cover) from US$18.5bn last week. Profit rates on National Savings Schemes were cut by 24-60bp across all instruments effective October 1st. which reflects the 50bp cut in policy rate and decline in PIB yields seen in the past two months. Oil prices showed no signs of recovery despite onset of Russian airstrikes in Syria. Pakistan and India continued to use harsh rhetoric for each other, this time at UN's platform where the former claimed to have evidence showing India's sponsoring terrorism in Pakistan.


The market continues to linger on with chronic lack of triggers. However, the recent deep correction may entice value investors, given global markets stabilize and the rumored crackdown of brokers does not go through. We maintain preference for high earnings quality plays, where our top picks include LUCK, DGKC, ENGRO, EFERT, UBL, POL, PPL, PAEL, OGDC, and ICI.


Bank spreads improved 4bps mom

The latest data of central bank shows banks spread have inched up 4bp to 5.51% in Aug- 15. The decline in lending rate of 6bp MoM (to 9.36%) was more than offset by the drop in deposit cost by 10bp to 3.85%.

US to release us$375mn under old arrangement

According to the Finance Minister Mr Ishaq Dar, it was decided during recent meetings with US State Department and Treasury Department that the US will release US$375mn in the next three to four days under coalition support fund (CSF). This is one of the two outstanding tranches.

Chinese company to build lng, gas pipeline projects in Pakistan

In November, the contract to build Gwadar liquefied natural gas (LNG) and the Iran-Pakistan gas pipeline will be awarded to Chinese firm, China Petroleum Pipelines Bureau (CPP).

Foreign exchange reserves rise to us$20bn: Dar

As per Finance Minister Mr Ishaq Dar's statement, foreign exchange reserves stand at US$20.07bn (4mth of import cover) including US$15.24bn reserves held by central bank. As a result, the SBP FX reserves comfortably meet the end-Sep target of US$14.3bn.

PRS90bn investment limit set for Pakistan

Steel buyer The government is mulling setting a minimum investment requirement of PRs90bn on top of bid price for sale of at least 51% shares of Pakistan Steel Mills (PSM). The cost of Voluntary Separation Scheme (VSS) for about 6,000 (33%) employees is estimated to be PRs16bn, which would be borne by the government. This exclude other liabilities have been put at about PRs35bn.

Moody's assigns definitive b3 rating to Pakistan's global bond offering

Moody's has assigned a definitive rating of B3 to the Pakistan's sovereign bond offering with a stable outlook. This is in line with the B3 rating on outstanding sovereign bonds.


Monday, Sep 28, 2015 Eurobond target met despite tepid response; FX reserves set to rise

- Pakistan's concluded a 10-year, US$500mn Eurobond US$500mn issuance last week. Bond receipt coupled with likely approval of IMF tranche of US$502mn (meeting due today) should lead to FX reserves rising to all-time high of US$19.2bn.

- The upcoming maturity of 2016 Eurobond is effectively covered, where a reserves drawdown of US$500mn is due in Mar-16. We reckon the government is likely to tap into the bond market again in 2HFY16.

- The pricing (8.25% coupon) and subscription size (~US$1bn) was less enthusiastic relative to past issues, though we attribute this to not-so favorable timing and market situation.



Tuesday, Sep 29, 2015 CPI set to be on slow mode; expect 1.7% in Sep-15

- We have fine-tuned our CPI estimate for Sep-15 at 1.7%, which is only slightly higher than consensus estimate (1.6%).

- In Sep-15, mild food and transport inflation (led by ~4% cut in POL prices) is expected to result in delayed U-turn in CPI.

- We do highlight possible upside risk from education sub-group as recent hike in school fee has not reflected in CPI in past 3-months and may be visible in Sep-15 reading.


Wednesday, Sep 30, 2015 Smooth release of ninth tranche; rising focus on pending reforms

- The recent approval of eighth review by IMF under EFF, in our view, is yet another positive development as (1) it further strengthens the external sector dynamics (US$505mn tranche released) (2) approves current monetary policy framework and (3) substantiates the continued reforms progress.

- From market perspective, continued focus on energy sector slippages is a key positive for energy stocks. We believe smooth progress on IMF program as well as supportive external and growth dynamics should trigger credit rating upgrade by SandP.

- While we await detailed document to shed more light, three areas of concern highlighted are (1) fiscal targets (2) slow pace of privatization and (3) complete central bank autonomy.



Thursday, Oct 1, 2015 Sep-15: Technically oversold; fundamentally undervalued

- Sep-15 does not portray an encouraging picture for KSE-100 seen in the context of both absolute return (-7% MoM drop) and relative performance (-5% underperformance vs MSCI FM index).

- The ongoing corruption probe is rumored to have included big market players and has emerged as a key sentiment dampener. The incessant foreign institutional outflow too limited the scope of value buying.

- YTD insipid performance has made our year-end KSE-100 index target of 39,500 more challenging. Stances involving 22% QoQ index returns in the past are rare. Key risk to our positive view is domestic politics which can hamper returns.

KASB Research

Friday, Oct 2, 2015 CPI: positive surprise in Sep-15 print; non-consensus estimate for FY16

- Latest CPI reading saw sharp dip to 1.3% YoY in Sep-15 from 1.7% in Aug-15 due to benign food inflation.

- We slash our CPI forecast to non-consensus 4% vs earlier 5% and SBP's estimate of 4.5-5.5%, based on (1) milder than expected food inflation in 1Q and (2) improved supply of minor crops expected ahead. Upside risks include (1) recovery in oil prices (2) further raise in power/gas tariff and (3) tax revenue measures.

- In our view, this opens up one last chance of easing in Nov-15 MPS, given soft inflation numbers expected (under 4%) in 2QFY16 and SBP's recent pro-growth stance in the backdrop of strong external sector dynamics.




Mkt. Cap (US$bn)###67.3###67.6###0.4%

Avg. Dly T/O (mn. shares)124.2###178.1###43.3%

Avg. Dly T/O (US$ mn.) 53.9###39.1###-27.5%

No. of Trading Sessions 3.0###5.0###-

KSE 100 Index###32,822.8###32,969.7###0.4%

KSE ALL Share Index###22,975.3###23,070.8###0.4%
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Publication:Pakistan & Gulf Economist
Date:Oct 11, 2015
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