Economic worries push Pakistan Stock Exchange down by over thousand points

Workers clean a glass facade of the Pakistan Stock Exchange (PSX) building in Islamabad, Pakistan, on December 3, 2018. (REUTERS/Faisal Mahmood)
Updated 07 December 2018

Economic worries push Pakistan Stock Exchange down by over thousand points

  • Fertilizers, cement and oil sectors showed dismal performance in November 2018, say analysts
  • Prime Minister Imran Khan does not have much of an economic team, contends a former director of PSX

KARACHI: Pakistan’s stock market on Thursday witnessed another volatile trading day amid uncertainty in the country’s economic arena, just a few days after an interest rate hike and rupee devaluation.

The benchmark KSE 100 Index nosedived by 1002 points – or 2.55 percent – and closed at the level of 38301 points amid panic selling triggered by global selloff and weak economic data.

“Panic selling was witnessed at the Pakistan Stock Exchange (PSX) due to investors’ concerns regarding global equity selloff. Apart from that, slump in the global crude oil prices, the ongoing political and economic uncertainty in the country, and dismal data on fertilizers, cement and oil sales for November 2018 played the role of a catalyst in the fall,” Ahsan Mehanti, senior equity analyst, said while talking to Arab News.

Pakistan’s cement sector showed a negative growth of one percent in November 2018, compared to the same month last year. “In November, the cement industry dispatched 3.899 million tons of cement, which was one percent less than 3.941 million tons of cement dispatched during the corresponding month of last year. Total local dispatches in the month fell from 3.593 million tons in November 2017 to 3.337 million tons last month, depicting a decrease of 7.13 percent,” data released by the All Pakistan Cement Manufacturer Association (APCMA) show.

However, exports continued to grow and rose by a whopping 61.33 percent from 0.349 million tons in November 2017 to 0.563 million tons in November 2018,” the data show.

Similarly, the oil sales during the five months of the current fiscal year (5MFY19) slipped to its lowest level in more than a decade by posting 33 percent YoY decline to 7.7 million tons. Furnace Oil (FO) sales declined by 68 percent mainly due to the shift of national energy mix to other alternatives like Regasified Liquefied Natural Gas (RLNG) and Coal.

Pakistan urea sales during November 2018 were down 21 percent. The overall sales in 11 months of current year (11M2018) were recorded at 5.1 million tons, down one percent.

Analysts believe that the current bearish trend in the market is fueled by the macroeconomic jitters arising out of the recent policy initiatives, including rupee devaluation and interest rate hikes, and lack of communication among the economic team.

“Prime Minister Imran Khan has no economic team to the run the country’s economic affairs. Only Razak Dawood is from the business community,” Yaseen Lakhani, senior stockbroker and former director of PSX, claimed while talking to Arab News.

“The government has increased the price of almost everything with the devaluation of rupee,” Lakhani said, adding: “The market is full of rumors and market participants are at the forefront in spreading them.”

Recently, the lack of coordination among the State Bank, Ministry of Finance and the Prime minister’s Office was exposed when PM Khan revealed himself that he found out about the rupee devaluation through media reports.

“Such miscommunication impacts the market. While the major worry for investors is the prevailing macroeconomic uncertainty in the country, such communication gaps exacerbate the situation,” Samiullah Tariq, Head of Research at Arif Habib Limited, told Arab News.

Tariq expects that the market volatility will continue during the next three to four months. “We sense that interest rate around 50 to 100 basis points will increase before the market stability returns,” he added.

The market participants are also nervously looking at the outcome of the recent talks between the government and International Monetary Fund (IMF). The Fund will be sending another delegation to the country next month to continue its conversation with the Pakistani authorities.

“The IMF says that talks with Pakistan are in the initial stages, contrary to the prevailing impression that they are already in the final phase,” Muzzamil Aslam, a senior economist, said.

“Most investors are also concerned that the IMF may opt out of the negotiations” due to Prime Minister Khan’s recent statement instructing the country’s central bank to inform him before changing the policy or exchange rates since it is against its conditions, Aslam added.

Gulf defense spending ‘to top $110bn by 2023’

Updated 15 February 2019

Gulf defense spending ‘to top $110bn by 2023’

  • Saudi Arabia and UAE initiatives ‘driving forward industrial defense capabilities’
  • Budgets are increasing as countries pursue modernization of equipment and expansion of their current capabilities

LONDON: Defense spending by Gulf Arab states is expected to rise to more than $110 billion by 2023, driven partly by localized military initiatives by Saudi Arabia and the UAE, a report has found.

Budgets are increasing as countries pursue the modernization of equipment and expansion of their current capabilities, according to a report by analytics firm Jane’s by IHS Markit.

Military expenditure in the Gulf will increase from $82.33 billion in 2013 to an estimated $103.01 billion in 2019, and is forecast to continue trending upward to $110.86 billion in 2023.

“Falling energy revenues between 2014 and 2016 led to some major procurement projects being delayed as governments reigned in budget deficits,” said Charles Forrester, senior defense industry analyst at Jane’s.

“However, defense was generally protected from the worst of the spending cuts due to regional security concerns and budgets are now growing again.”

Major deals in the region have included Eurofighter Typhoon purchases by countries including Saudi Arabia and Kuwait.

Saudi Arabia is also looking to “localize” 50 percent of total government military spending in the Kingdom by 2030, and in 2017 announced the launch of the state-owned military industrial company Saudi Arabia Military Industries.

Forrester said such moves will boost the ability for Gulf countries to start exporting, rather than purely importing defense equipment.

“Within the defense sector, the establishment of Saudi Arabia Military Industries (SAMI) in 2017 and consolidation of the UAE’s defense industrial base through the creation of Emirates Defense Industries Company (EDIC) in 2014 have helped consolidate and drive forward industrial defense capabilities,” he said.

“This has happened as the countries focus on improving the quality of the defense technological work packages they undertake through offset, as well as increasing their ability to begin exporting defense equipment.”

Regional countries are also considering the use of “disruptive technologies” such as artificial intelligence in defense, Forrester said.

Meanwhile, it emerged on Friday that worldwide outlays on weapons and defense rose 1.8 percent to more than $1.67 trillion in 2018.

The US was responsible for almost half that increase, according to “The Military Balance” report released at the Munich Security Conference and quoted by Reuters.

Western powers were concerned about Russia’s upgrades of air bases and air defense systems in Crimea, the report said, but added that “China perhaps represents even more of a challenge, as it introduces yet more advanced military systems and is engaged in a strategy to improve its forces’ ability to operate at distance from the homeland.”