Author Topic: Exchange rate weakness & KSE-100  (Read 27462 times)

0 Members and 1 Guest are viewing this topic.

Offline MZ

  • Research
  • Senior Member
  • *****
  • Posts: 10142
  • Thanks Received: 33
    • View Profile
Re: Exchange rate weakness & KSE-100
« Reply #59 on: August 26, 2014, 04:19:48 PM »
AKD Daily
 
Pakistan Market: Nuances of PkR weakness
The PkR shed 1% vs. the US$ yesterday, after recovering from an intraday decline of 2.1%, to bring FYTD depreciation to 2.3%. While there could be an element of speculation attached to recent currency weakness, and the SBP has alluded to this, the continuing political impasse is certainly having an impact. This has the potential to influence the SBP's policy rate decision where even projected Aug'14 CPI of 7.3%YoY may not be enough to guarantee a rate cut in the Sep'14 MPS. At the same time, while nascent currency pressures could well prove to be transitory, we eye medium-term risks if macro reforms turn sluggish. After the PkR's 0.2% appreciation vs. the US$ in FY14, slower reforms could mean a return to the historical 5%-6%pa. depreciation run rate. Within this backdrop, we flag E&P, IPPs, Textiles and Telecoms as sectors that may see a +ve earnings impact from a weaker PkR. On the flipside, a weaker PkR holds negatives for OMCs, Autos and Pharmas.

Inflation preview: We expect CPI to increase by 0.6%MoM in Aug'14 where the sequential increase comes due to sticky food prices post Ramadan. However, due to a high base, Aug'14 CPI should clock in at a sedate 7.3%YoY, the lowest since Jun'13. This will bring the 8MCY14 CPI average to 8.2%YoY while the full-year CY14 CPI average appears to be headed towards 8%YoY. Considering the DR has remained unchanged at 10% in this calendar year, the CPI trend suggests the SBP has room to reinitiate monetary easing in the Sep'14 MPS. That said, the central bank may be influenced by recent PkR weakness to maintain a cautious stance. This contrasts with our base-case view that the DR could come off by 100bps across the course of FY15.

Nascent BoP concerns: The Jul'14 CA deficit has clocked in at US$454mn vs. US$125mn in Jul'13 and US$135mn in Jun'14 with the deterioration occurring on the back of a wider trade deficit (exports: -13%YoY; imports: +10%YoY). Together with IMF repayments, Pakistan's fx reserves have come off by 2.7% from their CYTD high to US$13.9bn at present (import cover: 3.7m). With the rise in political noise, the PkR has shed 2.2%MTD vs. the US$ which has trimmed CYTD appreciation to 4.4% (FYTD the PkR has now weakened by 2.3%). While recent pressure on the currency has dovetailed with the rise in political temperature, risks to the pace of medium-term macro reforms even if political noise subsides suggest that the PkR could continue to weaken. Besides potentially influencing the policy rate decision, there are earnings implications at the corporate level (table below shows impact for every 1% change in PkR/US$ parity).       

Investment perspective: We reiterate a cautious stance on the Pakistan Market where we would wait for the political situation to defuse before taking fresh positions. For an existing portfolio, we would recommend a mix shift towards defensive, currency hedged plays with a particular liking for E&P and IPPs. Preferred plays within this theme include OGDC, PPL, HUBC, KAPCO, FFC, FFBL and PTC. On the flipside, a weaker PkR holds negatives for OMCs, Autos and Pharmas where investors could choose to book profits. 

Pakinvestorsguide

Re: Exchange rate weakness & KSE-100
« Reply #59 on: August 26, 2014, 04:19:48 PM »

Offline MZ

  • Research
  • Senior Member
  • *****
  • Posts: 10142
  • Thanks Received: 33
    • View Profile
Re: Exchange rate weakness & KSE-100
« Reply #60 on: September 23, 2014, 06:18:37 PM »
Policy of strong PKR now showing its affect on trade numbers

The external account weakness which was witnessed in the month of July continued in the month of August as well. Current account deficit number for August clocked in at USD0.6bn versus revised deficit of USD0.77bn in July. The dip has come about mainly due to receipt of CSF inflow in August. 2MFY15 current account deficit numbers now stand at a hefty USD1.37bn as opposed to USD0.58bn witnessed in the CPLY, mainly due to 55% jump in trade deficit. With contribution from Capital account remaining negligible, Financial account in 2MFY15 did rise to USD0.45bn versus USD0.19bn in CPLY.

The policy of strong PKR adopted since Mar-14 seems to be negatively affecting the current account as imports have risen, while exporters are finding it hard to compete with regional competitors. The monthly trade deficit of FY15 has risen to USD2.1bn versus FY14’s monthly trade deficit of USD1.4bn, resulting in reserves depletion. The weakness prevalent in PKR since last month due to political noise bodes well for lowering the trade deficit in our view. With SBP reserves now falling below the USD14bn mark, we expect further attrition till the government is able to launch OGDC’s GDR and Sukuk Bonds in the next month.

Taurus Research

Offline MZ

  • Research
  • Senior Member
  • *****
  • Posts: 10142
  • Thanks Received: 33
    • View Profile
Re: Exchange rate weakness & KSE-100
« Reply #61 on: September 30, 2015, 05:21:54 PM »
AKD Daily
 
Pakistan Economy: Exchange rate  - Elephant in the room

Pakistan’s exchange rate has seen considerable upwards revision since last year, as the economy recovered from a meek external liquidity position, strengthening by 5% against the US$ in CY14. In Pakistan’s case, a strong PkR holds multiple implications because while the economy benefits from relatively cheaper imports (positive impact on CPI), corporations with sizable exports (such as textiles which account for >50% of Pakistan’s exports) lose ground in terms of competitiveness. That being said, we project the PkR/US$ to undergo measured depreciation (avg. 2.3% p.a. in the next three years vs. 2.5% in the previous three years) as global dynamics continue to weigh and episodes of volatility can re-emerge from uncertainties over: 1) regional currency outlook, 2) US fed rate decision and 3) domestic lobbying to enhance export competitiveness. We forecast PkR/US$ parity to average PkR105/US$ (interbank) in FY16E (3.2%YoY depreciation). We see comfort on equity market performance (weak historic correlation of negative 30% between index performance and PkR/US$ movements) while tailwinds from a relatively weaker PkR should benefit sectors such as Textiles (NML), Power (HUBC, KAPCO) and Oil & Gas (OGDC).
PkR Outlook – Measured Depreciation: We forecast PkR/US$ parity to average ~105/US$ in FY16E (3.2YoY% depreciation) with annual depreciation to average 2.3% during FY16E-FY18F, escalating to 5%YoY thereafter. We derive our estimates based on time-series econometric regression analysis accounting for key drivers, primarily: 1) fx reserves, 2) inflation differentials and 3) interest rates. Downward pressures can emanate from: 1) expectations of stronger US$ performance, 2) regional currency volatility and risks of competitive devaluation across the region, 3) higher debt servicing over the medium term, and 4) inflationary pressures re-emerging from next year. While pressures for state enforced depreciation to aid trade competitiveness remain, we expect limited interference from the government where a weaker PkR can: 1) erode benefits of low oil prices (lost savings of PkR40bn in FY16E oil imports for every 1% PkR/US$ depreciation) and 2) negatively impact expected US$1bn Eurobond and Sukuk issuance in FY16 as well as planned privatizations. Additionally, we have constructed the PkR’s REER Index which also implies that the PkR is misaligned over its fundamental levels, underscoring our case for measured depreciation going forward.
Implications: Our forecast of measured currency depreciation holds multiple implications for the economy and stock investors. Despite providing short term relief due to lack of coherent policies to improve trade sector development, PkR/US$ depreciation can be positive for the country’s export competitiveness. On the flip side, a stable BoP position accompanied with a comparatively less vulnerable currency can be beneficial for the attraction and retention of foreign flows. With fx reserves and other external account indicators on a positive trend, we anticipate foreign investor interest in Pakistan to sustain.         .
Investment Perspective: We see comfort on equity market performance (weak historic correlation of negative 30% between index performance and PkR/US$ movements). Moreover, companies which have US$ hedged revenue streams stand to materially benefit. In this backdrop, we believe export based sectors such as textiles should benefit as a weak PkR can help gain some lost ground on the competitiveness front. Similarly, the energy sector (e.g. E&P and IPPs) with its US Dollar based revenue streams (combined 20% of total revenues at the KSE-100) should receive a boost from weakness in the PkR. Playing this theme, we recommend taking exposures in NML (TP: PkR167/share), HUBC (TP: PkR107/share), KAPCO (TP: PkR89/share) and OGDC (TP: PkR175/share).

Offline MZ

  • Research
  • Senior Member
  • *****
  • Posts: 10142
  • Thanks Received: 33
    • View Profile
Re: Exchange rate weakness & KSE-100
« Reply #62 on: May 12, 2016, 06:03:56 PM »
AKD Daily
 
Exchange Rate: Concerns can prop up beyond CY16
The PkR/US$ has depicted commendable stability in the ongoing year averaging PkR104.7 to reflect a marginal decline of 0.05%CYTD against the dollar. This has remained a function of: 1) weak dollar dynamics (DXY down 4.65%CYTD), 2) strong fx reserves countering BoP weakness and 3) ramp up in the FE-25 import financing facility (1QCY16 avg. utilization at US$1,438mn vs. CY15 avg. of US$749mn). Over the immediate term we see the PkR/US$ maintaining its stability, with projection for interbank rate to average PkR106.2 in CY16. That said, pressures on the Rupee are expected to emerge from start FY17 on account of: 1) higher inflation and potential reversal in monetary cycle and 2) greater BoP vulnerability to oil price shock where we now expect PkR to depreciate by 3.8%/4.0% (against earlier expectation of 2.4%) in FY17F/CY17F averaging at PkR108.5/PkR110.1. Fx reserve stability (before repayments start in May'17) however will help to restrict pressures on the PkR in the coming fiscal year.       .
PkR/US$ parity stable: After an episodic weakness in Aug'15, the PkR/US$ parity has largely stood its ground with FYTD/CYTD depreciation at a limited 2.85%/0.05% (avg: PkR104.3/104.7). The currency's strength has primarily been a function of: 1) weak dollar dynamics (DXY down 4.65%CYTD) prompted by US Fed's more dovish outlook this year, 2) fx reserves largely maintaining levels on account of foreign loans and IMF program to counter BoP weakness from rising trade deficit (up 23%YoY in 4MCY16) and deceleration in remittances (4.5%YoY in 4MCY16) and 3) ramp up in the FE-25 import financing facility (1QCY16 avg. utilization rising sharply to US$1,438mn vs. CY15 avg. of US$749mn). The latter has been effective to guard the PkR against sharp gains recorded by crude prices Feb'16 onwards (Arablight up ~34%CYTD), in our view.
Kerb premium - moving the other way: While PkR/US$ has oscillated in a close band, rates in the kerb market have seen significant consolidation over the past two months to stand at PkR104.7/US$. Consequently, spread between the kerb and interbank rates has shrunk drastically to PkR0.03 (0.03%) compared to its recent high of 1.5% in Dec'15. This divergence from interbank trend is expected to have been largely driven by greater regulatory crackdown on local dealers to ensure adequate dollar supply in the market. Going forward, the kerb market is likely to see revision over the short term on periodic dollar demand near Ramadan and Eid season, albeit we expect the kerb premium to stay restricted on tighter regulatory control.
Rupee outlook - vulnerabilities to emanate from BoP: Over the immediate term we see PkR/US$ maintaining its stability, where we reiterate our projection of interbank rate to average PkR106.2 in CY16. That said, pressures on the Rupee are expected to emerge from start FY17 on account of: 1) higher inflation trajectory (FY17F CPI inflation avg. : 5.5%YoY) and potential reversal in monetary cycle (room for 50bps hike in 4QCY16), 2) BoP risks coming into play in case of further recovery in global oil prices. Regarding the latter, while Pakistan has benefited from tailwinds of low petroleum prices so far, the BoP front is now more vulnerable to oil price shocks with non-oil imports rising sharply (up 32%YoYFYTD), deceleration in remittance growth and exports recovery remaining unlikely in the near term. Within this backdrop, continued ascent of crude prices can prove to be a major risk. However, strong fx reserve position is likely to act as the  prime mitigating factor which though contingent on materialization of project and multilateral loans (GoP projects PkR4.7bn flows in FY17) should lend support to the Rupee in FY17 before major debt repayments kickoff. Incorporating the same, we project FY17F/CY17F PkR/US$ rate to average PkR108.5/PkR110.1 (based on time series regression analysis on fx reserves, inflation and interest rate differentials). Major risks to thesis remain exogenous shocks from earlier than expected recovery in dollar. driven by US monetary policy.

Offline Valueestimator

  • Global Moderator
  • Senior Member
  • *****
  • Posts: 2800
  • Thanks Received: 10000
    • View Profile
Re: Exchange rate weakness & KSE-100
« Reply #63 on: May 12, 2016, 07:12:46 PM »
currency will depreciate once imf loan will be fully disbursed. so far dollar keeps coming.
Top Picks: BTL, FASM, KHTC, AGIC, NPL, AKBL, BOP,ATRL

Offline MZ

  • Research
  • Senior Member
  • *****
  • Posts: 10142
  • Thanks Received: 33
    • View Profile
Re: Exchange rate weakness & KSE-100
« Reply #64 on: December 07, 2016, 09:21:37 PM »

AKD Daily
 
Pakistan Economy: Rupee dodging dollar bulls
 
The US FOMC is largely anticipated to increase the fed rate in its upcoming monetary review next week (Dec 13-14'16) that coupled with a surge in inflationary expectations post Trump victory has pushed the greenback to its 14yr high (dollar index up 3.7%MoM). Within this context, the upcoming meeting retains particular importance as Fed's economic projection for future rate trajectory can alter the dollar outlook. While most regional currencies have dipped vis-à-vis US$ (2.1%MoM avg. depreciation), the PkR/US$ parity has held its ground. Moreover, GoP's ongoing drive to normalize kerb-rates (recovery up to PkR106.5) is a strong signal of its policy to maintain currency stability. However, going forward we see room for limited depreciation (FY17 avg. projection at PkR106.2/US$) with determinants for the same being: 1) exports weakness amid lower currency competitiveness in the region, 2) higher oil prices adding to import bill and 3) potential delays in foreign debt flows to support fx reserves.
 
Dollar outlook retaining FOMC relevance: The US FOMC is scheduled to deliberate its monetary policy statement next week (Dec 13-14), with the likely outcome being a 25bps hike (fed funds futures indicated probability at 100%) - the second since the lift-off one year ago. Room for surprise remains limited following: 1) Fed's guidance in its Nov'16 review and 2) promising US economic data with encouraging employment report being the most recent reaffirming factor in this regard (4.6% unemployment rate at lowest since Aug'07). This coupled with higher expected inflation under Trump's presidency has helped the dollar reach its 14yr high (CYTD DXY: up 3.7%MoM). While a hike this month looks certain, further increases next year remain hard to predict (futures indicate another hike unlikely till Jun'16) and largely dependent on fiscal policy under the new administration. Within this context, the upcoming meeting retains particular importance as Fed's economic projection for future rate trajectory may alter the outlook for the greenback.
 
Rupee - keeping dollar strength at bay: Despite the interbank PkR/US$ parity remaining stable, kerb rates have fallen sharply with the premium peaking at 2.64%, to reflect: i) regional currency weakness (down avg. 2.1%MoM) and ii) higher dollar demand particularly after India's demonetization drive. While the trend reflects intrinsic Rupee weakness, GoP's recent drive to control open-market rates, pushing recovery up to PkR106.5/US$ since mid-last week, is a key signal of its policy to maintain exchange rate stability. However, a bullish outlook for the greenback as shaped by expectations about the US fed rate, remains a key risk going forward and is likely to trickle through to the local market, where recurrence of kerb-market volatility is probable. Along with a stronger dollar, determinants for timing of depreciation in the interbank market are: 1) current exports weakness and pace of recovery post-announcement of much-awaited exports relief package, 2) higher oil prices ($5/bbl over our US$45/bbl assumption adds US$0.8-1bn to the annual import bill) and 3) continuance of foreign debt flows to support fx reserves. We maintain our PkR/US$ FY17 avg. projection at PkR106.2 on account of expected slippages in the aforesaid factors next year.

Offline MZ

  • Research
  • Senior Member
  • *****
  • Posts: 10142
  • Thanks Received: 33
    • View Profile
Re: Exchange rate weakness & KSE-100
« Reply #65 on: June 29, 2017, 03:41:46 PM »
Elixir Insight


Pakistan Economy

         CAD widened by 2.78x YoY to USD8.93bn in 11MFY17 owing to 14% YoY jump in imports and stagnant remittances / exports growth. On monthly basis, CAD jumped 28% MoM to USD1.58bn in May’17 lead by 13% MoM jump in imports in spite of 9% MoM / 18% MoM growth in exports / remittances.

·         While FDI grew by 23% YoY to USD2.03bn in 11MFY17, it remained relatively miniscule in comparison with widening CAD to support BOP. On monthly basis, FDI grew by impressive 153% YoY / 124% MoM to USD295mn.

·         CAD is not expected to show significant improvement in near term on account of increased machinery imports related to CPEC projects and stagnant exports/remittances. Thus, we believe that CAD would continue to pressure already strained FX reserves and it is a question of when the next spurt of currency depreciation materialize.

·         We target PKR at 111-114 by the end of FY18

CAD widens 2.78x YoY: According to SBP’s recently released Balance of Payment (BOP) data, Current Account Deficit (CAD) has grown 2.78x YoY to USD8.93bn in 11MFY17 vs. USD3.21bn in 11MFY16. This has been a result of (1) 14% YoY growth in imports (USD50.36bn in 11MFY17 vs. USD44.18bn in 11MFY16), (2) remittances dropping by 2.13% YoY (USD 17.46bn in 11MFY17 vs. USD17.84bn in 11MFY16, and (3) flatter exports down 1% YoY to USD24.92bn in 11MFY17 vs. USD 25.14bn in 11MFY16.

Jump in imports has been primarily attributable to surge in machinery imports (particularly related to power generation) and petroleum imports (owing to increased demand for POL products and increased import of LNG). Whereas remittances have remained under pressure primarily due to 3% YoY decline in remittances from GCC countries (constituting 63% of total remittances) as the oil dependent economies bear the brunt of lower oil prices. On monthly basis, CAD jumped 28% MoM to USD1.58bn in May’17 vs. USD1.23bn in Apr’17 lead by 13% MoM jump in imports (USD5.40bn in May’17 vs. USD 4.77bn in Apr’17) in spite of 9% MoM / 18% MoM growth in exports / remittances (USD2.33bn / USD1.87bn in May’17 vs. USD2.14bn / USD1.54bn in Apr’17).

FDI growth falls behind its potential: FDI grew by 23% YoY to USD2.03bn in 11MFY17 vs. USD1.65bn in 11MFY16. Nonetheless, it remained relatively miniscule in comparison with widening CAD, to support BOP. Chinese foreign investment which constituted 43% of total FDI grew by 34% YoY to USD921mn in 11MFY17 vs. USD657mn in 11MFY16. However, this amount significantly lags behind the potential entailed in USD57bn CPEC projects. On monthly basis, FDI grew by impressive 153% YoY / 124% MoM to USD 295mn vs. USD116mn / USD132mn in May’16 / Apr’17.

BOP/Currency Outlook: CAD is not expected to show significant improvement in near term on account of increased machinery imports related to CPEC projects and stagnant exports/remittances. In this regard, the Real Effective Exchange Rate (REER) has reached record high level of 127.4 (indicating PKR to be overvalued by 27.4% against the basket of trade weighted currencies).

However, we would like to highlight that it is due to (1) shortcoming in methodology not accounting for real interest rates, and (2) structural changes in (heavyweight trading partners) EU/UK economies translating into slide in EUR/GBP owing to low interest rate policy/Brexit, respectively. On the other hand, the Real Bilateral Exchange Rate (RBER) against USD stands at 109 (indicating PKR to be overvalued by 9% against USD). Based on this methodology, fair value of PKR/USD exchange rate stands at 114, compared to last closing inter-bank rate of PKR104.8/USD.

While Rupee has recently sustained the pressures and has remained stable for the last two years, it should be noted that Pak Rupee has historically remained stable for months and then exhibits a sharp spurt to overcome the brewing pressures in BOP. We thus believe that based on the ongoing strain on CAD and the resultant pressure on FX reserves, it is a question of when the next spurt of currency depreciation materializes; which may be around the next general elections due in 4Q/FY18. We thus target Pak Rupee at PKR111-114 by end of FY18.

Offline sAr

  • Active Member
  • ***
  • Posts: 613
  • Thanks Received: 6
  • All hail Value Investments
    • View Profile
Re: Exchange rate weakness & KSE-100
« Reply #66 on: July 05, 2017, 03:46:01 PM »
• During the trading hours today, PKR/USD interbank exchange rate has depreciated by 3.2% to 108.3 (touching a high of 108.5) from 104.9 yesterday.
•         While we are anticipating depreciation spurt of 6-9% during FY18 (refer to our daily: “Currency Depreciation Lurking Amidst Deteriorating BOP” dated 29th Jun’17), today’s slide has been surprising given no material development in recent days. In our view, PKR’s overvaluation (9% vs. USD based on RBER) and pressure on FX reserves due to deteriorating BOP were the main reasons behind today’s fall in exchange rate.
•         Sectors that will be positively impacted include Oil & Gas Exploration (on the back of USD denominated revenues), Independent Power Producers (driven by USD based tariff) and export driven industries (Textiles, Meat)
•         On the other hand, Automobile Assemblers, Cement and Steel sectors are likely to be negatively impacted from PKR depreciation. 40-60% of Auto Assemblers’ direct costs is denominated in foreign currencies but given a robust demand outlook, a sustained weakness in PKR is likely to allow the companies to pass on the cost pressure via increased prices. On the flip side, local assemblers will enjoy a more competitive environment against imported reconditioned cars.
•         Imported coal accounts for 25-30% of COGS for cement manufacturers. Every 1% depreciation in PKR (over and above our depreciation assumption) erodes the sector margins by 10-20bps which has a annualized bottomline impact of 0.8-1.0% (which is partially mitigated by exports).
•         Raw material (steel scrap) imports constitute ~60% of Amereli Steel’s (ASTL) COGS. We estimate that every 1% depreciation in PKR (over and above our depreciation assumption) results in ~PKR0.25/share (4%) impact on annualized EPS.
•         Amongst other stocks, 60-65% of COGS for Pak Elektron (PAEL) are denominated in foreign currency; in case of failure to pass through cost pressures, every 1% depreciation in PKR (over and above our depreciation assumption) results in ~PKR0.3/share (3.5%) impact on annualized EPS.
•         As highlighted in our Strategy Note for FY18 (released July 3, 2017), we maintain our bullish stance on sectors that derive returns from US Dollar and maintain PPL, MARI, OGDC and HUBC amongst our top picks.

Elixir Research
Above mentioned comment is not a Buy/Sell recommendation. Do your own due diligence before Investing.

Offline Shakir123

  • Junior Member
  • **
  • Posts: 440
  • Thanks Received: 0
    • View Profile
Re: Exchange rate weakness & KSE-100
« Reply #67 on: July 05, 2017, 03:58:58 PM »
Wht abt nrl and Aisha

Offline Farzooq

  • Administrator
  • Senior Member
  • *****
  • Posts: 22000
  • Thanks Received: 196
    • View Profile
Re: Exchange rate weakness & KSE-100
« Reply #68 on: July 05, 2017, 05:10:08 PM »
PKR/USD touches 108.20/108.4 in inter-market:
 
Panic started to set in the FX market today as the long anticipated weakness in PKR/USD parity started to materialize. In this regard, PKR/USD exchange rate parity touched 108.20/108.4 in the inter-market, representing a 3.3%DoD depreciation. Regional currencies had depreciated by 4% - 8% over the last 12 months while PKR stood its ground, making the country’s exports uncompetitive in the global market. The pressure had been building on the federal government to rationalize the exchange parity in wake of significant build up in CAD over the last couple of years.  An abrupt movement in exchange rate will have a mixed impact on the listed sector details of which are mentioned below.
 
?   Banks-Positive: Country’s banking sector is set to benefit from the depreciation in PKR. This benefit is likely to be two pronged. Firstly, if as expected, PKR continues to lose ground, banks are likely to realize higher income from trading in the foreign currency, a head where they disappointed last year as USD stood firm ~PKR105. On a more sustainable basis, headwinds on the exchange parity will also result in country “importing inflation” and that will further mitigate the case of a pick-up in DR, thus further strengthening the investment case of the banks. In this backdrop, we prefer banks with i) higher portion of CA (as they don’t get re-priced at higher rates) and ii) higher ADR (where the asset is linked to a benchmark rate). However, the immediate impact of a hike in DR is slightly negative as the liabilities linked to DR will be immediately re-priced to a higher rate while the assets get re-priced with a lag.
 
?   E&P’s-Positive: The sector is likely to be one of the prime beneficiaries of the currency devaluation given sales of the sector are benchmarked to USD. Furthermore, cash reserves in foreign currency deposits will enable them to recognize a one-off of revaluation gain.
 
?   Power-Positive: BIPL power universe is a net beneficiary of PKR/USD depreciation with an earnings impact of around 2% to 3% for every 5% depreciation of Pak rupee against US dollar. However, increase in electricity cost due to currency depreciation can also be expected to increase the quantum of circular debt, leading to arise in penal income.
 
?   Textiles-Positive: Textile sector, the main FX generating sector for the country, is likely to be the key beneficiary of adverse movement in exchange rate. To mention, 55% - 60% of country’s total exports are textiles which will benefit from i) exchange gains ii) increased competitiveness of the local exporters in the international market and iii) higher retention prices in PKR. In this regard, we expect NML and GATM to be the biggest beneficiaries with a higher concentration of exports in their total top-line.
 
?   Fertilizer-Positive: Currency depreciation will result in higher margins on exports which may assist in making exports viable again. Furthermore, higher cost of RLNG will reduce the competitiveness of LNG based players. Both these factors may assist in reducing the inventory glut in the market. To note, the development is beneficial for FFBL since higher PKR/USD will increase the cost of imported DAP fertilizer, allowing FFBL to increase its prices and therefore DAP margins.
 
?   Steel-Positive in Long-term/Negative in Short-term: Even though depreciating local currency will be positive for steel manufacturers in long term on the back of higher translated primary margins but it will negatively hit the industry in short term on account of hefty exchange losses amid import of scrap and HRC.
 
?   Cement- Increase in Cement price Positive/ Currency Depreciation Negative: As per our channel checks, cement prices in local market has increased by PKR 20/bag in north and PKR 15/bag in south. The rationale for increase in prices is to pass-over the impact of increase in FED on cement effective from Jul-17. To recall, FED on cement was raised to PKR 1.25/kg from PKR 1.0/Kg in Federal Budget FY18. This implied an incremental cost of PKR12.5/bag excluding GST.
 
On the other hand, depreciating PKR will negatively impact the cement industry in terms of exchange losses on coal import. Similarly, cement players utilizing FO based captive power plant for power generation will also take a hit from exchange rate reversal. 
 
?   OMC’s-Negative: Marketing companies will be amongst the losers amid sever threat of exchange losses to the industry. Furthermore, higher USD/PKR will translate into higher fuel prices, thereby threating a slowdown in sales growth.
 
?   Auto’s- Negative: The sector will be prime sector affected by the ongoing depreciation since majority of its cost is imported materials. However, the industry is likely to pass on the cost pressures upto a certain level. Also, SBP had restricted companies from hedging USD/PKR exposure where auto industry faces risk of significant exchange losses.
 
?   Pharmaceuticals-Negative: Pharmaceutical sector of the country is likely to be one of the biggest losers of the abrupt movement in exchange rate as the sector imports majority of its raw materials where the imports are denominated in USD. This will result in the erosion of margins of the pharmaceutical sector unless the regulator allows the companies to pass on the pricing pressures on to the end users. This seems unlikely as the prices are increased through a pricing formula where the prices are increased by 50% - 70% of inflation.
 
?   Telecommunications-Negative: PTCL is expected to be a significant loser because of the depreciation in PKR as its subsidiary PTML holds a USD denominated loan it took to purchase 3G license. The hit is however not going to be realized in 2Q as the currency remained stable until 30th June.
TOP PICKS
Engro efert ogdc ppl pso dgkc luck hubc ubl hbl atrl nrl nml efoods aicl hcar searl

Offline MZ

  • Research
  • Senior Member
  • *****
  • Posts: 10142
  • Thanks Received: 33
    • View Profile
Re: Exchange rate weakness & KSE-100
« Reply #69 on: July 05, 2017, 07:35:41 PM »
Flash Note


Pakistan Equity Market

Pak Rupee Depreciation Finally Kicks In
 
·         During the trading hours today, PKR/USD interbank exchange rate has depreciated by 3.2% to 108.3 (touching a high of 108.5) from 104.9 yesterday.

·         While we are anticipating depreciation spurt of 6-9% during FY18 (refer to our daily: “Currency Depreciation Lurking Amidst Deteriorating BOP” dated 29th Jun’17), today’s slide has been surprising given no material development in recent days. In our view, PKR’s overvaluation (9% vs. USD based on RBER) and pressure on FX reserves due to deteriorating BOP were the main reasons behind today’s fall in exchange rate.

·         Sectors that will be positively impacted include Oil & Gas Exploration (on the back of USD denominated revenues), Independent Power Producers (driven by USD based tariff) and export driven industries (Textiles, Meat)

·         On the other hand, Automobile Assemblers, Cement and Steel sectors are likely to be negatively impacted from PKR depreciation. 40-60% of Auto Assemblers’ direct costs is denominated in foreign currencies but given a robust demand outlook, a sustained weakness in PKR is likely to allow the companies to pass on the cost pressure via increased prices. On the flip side, local assemblers will enjoy a more competitive environment against imported reconditioned cars.

·         Imported coal accounts for 25-30% of COGS for cement manufacturers. Every 1% depreciation in PKR (over and above our depreciation assumption) erodes the sector margins by 10-20bps which has a annualized bottomline impact of 0.8-1.0% (which is partially mitigated by exports).

·         Raw material (steel scrap) imports constitute ~60% of Amereli Steel’s (ASTL) COGS. We estimate that every 1% depreciation in PKR (over and above our depreciation assumption) results in ~PKR0.25/share (4%) impact on annualized EPS.

·         Amongst other stocks, 60-65% of COGS for Pak Elektron (PAEL) are denominated in foreign currency; in case of failure to pass through cost pressures, every 1% depreciation in PKR (over and above our depreciation assumption) results in ~PKR0.3/share (3.5%) impact on annualized EPS.

·         As highlighted in our Strategy Note for FY18 (released July 3, 2017), we maintain our bullish stance on sectors that derive returns from US Dollar and maintain PPL, MARI, OGDC and HUBC amongst our top picks.

Offline Deep_Value

  • Junior Member
  • **
  • Posts: 241
  • Thanks Received: 0
    • View Profile
Re: Exchange rate weakness & KSE-100
« Reply #70 on: July 05, 2017, 07:47:04 PM »
Flash Note


Pakistan Equity Market

Pak Rupee Depreciation Finally Kicks In
 
·         During the trading hours today, PKR/USD interbank exchange rate has depreciated by 3.2% to 108.3 (touching a high of 108.5) from 104.9 yesterday.

·        .........................

·         Amongst other stocks, 60-65% of COGS for Pak Elektron (PAEL) are denominated in foreign currency; in case of failure to pass through cost pressures, every 1% depreciation in PKR (over and above our depreciation assumption) results in ~PKR0.3/share (3.5%) impact on annualized EPS.

·         As highlighted in our Strategy Note for FY18 (released July 3, 2017), we maintain our bullish stance on sectors that derive returns from US Dollar and maintain PPL, MARI, OGDC and HUBC amongst our top picks.

So ppl will stop buying PEL refrigrator and what is the other option to buy imported one whouldn't that be expensive again due to devaluation of currency???? No wonder if this analyst will selling his cycle to buy PAEL shares at this rate.

Offline MZ

  • Research
  • Senior Member
  • *****
  • Posts: 10142
  • Thanks Received: 33
    • View Profile
Re: Exchange rate weakness & KSE-100
« Reply #71 on: July 05, 2017, 09:22:45 PM »

Offline leo_kool

  • Active Member
  • ***
  • Posts: 536
  • Thanks Received: 0
    • View Profile
Re: Exchange rate weakness & KSE-100
« Reply #72 on: July 06, 2017, 10:45:55 AM »
today's rate ?

Offline leo_kool

  • Active Member
  • ***
  • Posts: 536
  • Thanks Received: 0
    • View Profile
Re: Exchange rate weakness & KSE-100
« Reply #73 on: July 06, 2017, 11:04:18 AM »
Back to 105!!!! .............. Dar Sb nay control karlya.....elections k baad hi ya panama verdict (in case against ) k baad hi increase hoga.....

Offline Farzooq

  • Administrator
  • Senior Member
  • *****
  • Posts: 22000
  • Thanks Received: 196
    • View Profile
Re: Exchange rate weakness & KSE-100
« Reply #74 on: July 06, 2017, 12:55:27 PM »
Pakistan Strategy: Acknowledgement of External woes; currency move not a blip
We believe a single day big move in Rupee-Dollar parity (3.19%, highest move since Aug’08) is well grounded and fundamental, though the bold move from thee central bank defies earlier expectation of continuation of tight currency control.
The damage control exercise by Ministry of Finance in the form of meetings of heads of commercial banks may cause rupee to nominally recover and stabilize the sentiment in open market. We rule out the possibility of reversal of this adjustment, though partial recovery can not be ruled out.
We positively view a much-needed adjustment at the start of the fiscal year, coupled with other import measures, which will likely restrict import growth.
That said, we highlight the currency move is well within our estimate (5-5.5% devaluation) and does not disturb our CPI and corporate earnings growth estimates for now. We don’t rule out similar such big moves in coming quarters.
E&Ps, IPPs, Textile, IT Export and Fertilizer are key beneficiaries of rupee devaluation, while  pricing power will be tested for manufacturing sectors (Cement, Autos, Steel, listed dairy consumers). Neutral for OMCs, Refineries, Banks, Auto parts, Insurance, and Consumers.
Acknowledgement of external woes - currency move not a blip! The latest press release by central bank on yesterday’s sharp exchange rate move of 3.19% to PKR108.25 and revision made in the external sector data comes in as a bold move which could have several implications, in our view. Meanwhile, damage control measures from Finance Ministry (meetings with banks’ Presidents due today) are expected to continue which should serve to bring more stability in the open market (PKR dipped to 109.4 intra-day yesterday, down 3.2%). SBP’s apparent endorsement of a new trading band for the currency is another step to increase import cost, clearly acknowledging the worsening external account position and curbing further FX pressure. Recall the central bank imposed 100% cash margin on some imports in 3QFY17 in a bid to restrict import bill. The move followed increase in Regulatory Duty/Import Duty on over 586 items, mostly luxury in nature, in the latest budget. We see several possible implications including:(i) another round of devaluation cannot be ruled out, and (ii) SBP backing its move by reinforcing that it will be closely monitoring the FX market vis a vis pressure from Finance Ministry indicates that the exchange rate will be managed going forward (thus any sharp sentiment-driven exchange rate move to follow could scale back).

Merits and perils: While the implications on macro are dependent on magnitude of devaluation of currency in next few months, direct impact on some of the indicators cannot be ignored:

#1 Addressing worsening trade deficit: The impact on non-fuel and machinery import could be crucial to restrict the import growth bill. Though much needed for export growth, its merits may be limited and dependent on PKR moves with other currencies.

#2 Increase in Public debt: In addition, pressure on external debt to GDP remains unabated. Currency weakness of 3.2% implies an increase in public debt in terms of PKR by ~PKR214bn or 0.67% of GDP (given public external debt stands at USD61.95bn as of Mar’17). Looking ahead, an expected increase in net public external debt by USD5bn would potentially add 1.5% of GDP in FY18.

#3 Exchange rate and CPI inflation strongly correlated though see minimum near-term impact: Impact of exchange rate on the CPI inflation will be closely tracked, however soft oil price trend and absence of fuel adjustment in power tariffs in the CPI basket are likely to have minimum impact on near-term CPI readings. Second round impact is likely to come into effect at least with a quarter lag, as manufacturers with stronger pricing power raise prices, though a concurrent seasonal drop in food prices in 2Q could help in offsetting the impact.

Revision in import bill related to power and energy sector: The latest revision in Balance of Payments (BoP) data by SBP to include permissible offshore FX transactions mainly in the energy and power sectors prompt a revision in our estimate for BoP for FY18E which are currently under review. As such the crux of the revisions made by SBP revolves around increase in Current Account Deficit (CAD) by USD1.4bn/1.7bn for 11M16 and 11M17 respectively, led by higher imports (both goods and services). The imports are financed and offset by concurrent increase in private sector debt (USD0.8bn/USD1.4bn) and FDI (USD0.4bn/USD0.18bn) for the same period, recorded as inflow in the financial account. Consequently, total external debt (including private sector) as of Mar’17 now stands at USD77.6bn or 25.5% of GDP (revised up by over USD1bn) as per SBP, up USD3.8bn from Jun’16.

Mixed response from capital markets: The move in currency market had drawn a mixed response in both money and equity markets. Yields on 3-5yr bond have moved up ~5-7bps yesterday in reaction to currency move. Given our CPI estimates remains unchanged, we believe the currency move will not impact the timing of rate reversal (3Q18E). The KSE-100 index exhibited a volatile move as early gains (+2.1%) were pared back in late hour trading (KSE-100 closed flat). The equity market has understandably bid up prices for likely devaluation beneficiaries (E&Ps, IPPs, Textile, IT Export, Fertilizer which comprises ~35% of market cap of KSE-100 index) while Cement, Autos, Steel and Dairy exhibited a negative move. The currency move has brought pricing power of major manufacturing sectors in the limelight and may have modest negative impact in near-term. OMCs, Refineries, Banks, Auto parts, Insurance, Consumers (43% of market cap) will see a neutral impact on the earnings.

bma
TOP PICKS
Engro efert ogdc ppl pso dgkc luck hubc ubl hbl atrl nrl nml efoods aicl hcar searl

Offline buy.high.sell.low

  • Active Member
  • ***
  • Posts: 580
  • Thanks Received: 8
    • View Profile
Re: Exchange rate weakness & KSE-100
« Reply #75 on: July 06, 2017, 04:27:40 PM »
Even after reading the bma report above I am mystified as to why this govt had remained hell bent on artificially keeping rupee valued so high, other than trying to prove sheikh rasheed wrong as he was decrying that the rupee will nose dive when pml-n formed the govt. The dollar has strengthened against all major currencies and this government could easily have explained the devaluation. Rupee's fair value is in 120s but the govt will lose a lot of face if it happens and at a very un opportune time as elections are less than a year away.

The only explanation that i can think of was that the black money (not necessarily govt or their cronies) in pakistan buys USD in local market at cheaper rates and parks it in offshore accounts.

Offline MZ

  • Research
  • Senior Member
  • *****
  • Posts: 10142
  • Thanks Received: 33
    • View Profile
Re: Exchange rate weakness & KSE-100
« Reply #76 on: July 06, 2017, 05:57:26 PM »
AKD Daily
 
Pakistan rupee: Tipping over
 
The PkR/US$ parity depreciated in a sharp movement yesterday - the largest daily move since CY08 - with the rate closing at PkR108/US$ (~3.2% depreciation), primarily reflecting ongoing deterioration in fx reserve position due to rising trade imbalances (11MFY17 CAD 1.3xYoY higher) and slower foreign loan inflows (70% disbursement of the budgeted amount from multilateral donors in 11MFY17). While currency is expected to remain volatile, a pullback in the PkR remains likely (PkR/US$ trading at PkR106.3 intraday as per channel checks) taking cue from MoF and SBP's statements. However, over CY17 PkR is likely to consolidate around PkR106-107 with fx reserves remaining above US$19bn, in our view. Thereon, depreciative pressures are expected to build as CA dynamics worsen (FY18F: 4.5% of GDP) with import cover coming under 4m, to trigger further PkR/US$ depreciation (4.9% in FY18F). Implications on the macro front linger in the form of inflationary pressures (FY18F CPI inflation projection up by +30bps) and higher debt servicing. From the market's vantage, PkR weakness remains beneficial for Textile, E&P and IPPs while holding negative implication for Cements, Steel and Automobiles.
 
Rupee devalues - as reserves exhaust: In a sudden move, the Rupee depreciated sharply by 3.18% yesterday to close at PkR108.2/US$. As per channel checks, the devaluation is a function of decline in fx reserves limiting SBP's capacity to adequately support the currency amid a growing trade imbalance. In this regard, fx reserves have fallen by US$2.7bn from their peak in Oct'16 owing to slower project-loan inflows (70% disbursement of the budgeted amount from multilateral donors in 11MFY17). Moreover, pressures on interbank have risen considerably on account of a rapidly rising import bill with SBP's FE-25 facility to manage Rupee volatility also reaching its peak at US$1.3bn in May'17. While the SBP has resorted to short-term commercial borrowing, increase in CAD has outpaced efforts for fx reserve accretion with the deficit now standing at its highest since FY08.
 
CA outlook - dismal at best: Colliding with currency depreciation, SBP has revised BoP statistics from FY15 onwards to include transactions done through off-shore accounts in efforts to increase transparency. Consequently, CAD for 11MFY17 has been revised up to 3.4% of GDP from 2.9% reported earlier (FY16 deficit revised to 1.7% of GDP from 1.2%). The change has primarily come from an increase in Machinery imports particularly in the Power/Energy sector (likely CPEC related) with imports revised up by US$1.03bn for 11MFY17. In tandem, adjustments have been made to the financial account. On a positive note, PkR weakness is likely to help exports recovery in the coming year which incorporated along with data revision, takes FY18F CAD projection to 4.5% of GDP (from 3.8%) compared to FY17E deficit expected at 3.7%. While, this implies sharp increase in CAD, the adjustments are unlikely to have additional impact on the fx reserve position due to corresponding changes to the financial account.
 
Outlook - consolidation followed by weakness: With our projections indicating fx reserves to stabilize above US$19bn in CY17, we expect the currency to largely consolidate around PkR106-107 in remainder CY17 - though reliant on materialization of planned foreign inflows on a timely basis. In this regard, GoP's stance on currency devaluation being triggered by political uncertainty and SBP's claims to counter volatility further affirms our outlook. That said, depreciative pressures are expected to continue to steadily build up where our current account projections imply fx reserves deterioration in FY18 with the same expected to end the year around US$17-17.5bn (import cover projected at 3.9mths). This is expected to open room for further slippage in the PkR/US$ where we maintain our forecast of 4.9% depreciation for the ongoing fiscal year. That said, delay in foreign loans or a sharper recovery in international oil prices (Arablight assumed to stay below US$55/bbl) can trigger further devaluation during the year.
 
Negative implications for economic stability: Spillover effects of a weaker Rupee are likely to emanate in the form of direct pressures on the fiscal account with external debt servicing budgeted at ~8% of the year's revenue. Moreover, increasing reliance on imports for fuel and investment machinery also implies inflationary pressures, particularly in the form of higher domestic fuel prices. However, support is expected from persistent weakness in global crude prices, where the recent depreciation increases our CY17F/FY18F inflation projection by +10bps/+30bps to 4.4%YoY/5.1%YoY. While real interest rates remaining in the positive zone should allow SBP to hold interest rates at current levels till May'18 - higher than expected depreciation can open room for a nominal hike early-CY18.
 
Investment perspective: Export oriented sectors, particularly Textile, will be the key beneficiary of PkR weakness, where a stagnant Rupee has hurt competitiveness. In this regard, assuming 5% depreciation from our base case implies a positive 2.8% earnings impact on NML. E&P and IPPs with dollar-linked revenues also stand to benefit with 5% devaluation prompting 4.6%/5.7% avg. rise in FY18 earnings in our E&P and Power Universe. On the other hand, import-dependent sectors, including Automobiles, Cements and Steel face negative implications (see table on next page). In addition, select scrips (ENGRO, FFBL, EFERT within AKD Universe) with high share of foreign borrowing also face currency risks in the form of higher repayments.

Offline MZ

  • Research
  • Senior Member
  • *****
  • Posts: 10142
  • Thanks Received: 33
    • View Profile
Re: Exchange rate weakness & KSE-100
« Reply #77 on: July 28, 2017, 04:42:57 PM »
Flash Note

Pakistan Strategy

SC Disqualifies PM – All Eyes on the Exchange Rate!

 
·         The Supreme Court announced its landmark ruling on the ongoing Panama case, where the larger bench disqualified Prime Minister Nawaz Sharif from his position. Moreover, news reports hint towards disqualification of sitting Finance Minister Mohammad Ishaq Dar from his position; in addition to forwarding cases against the First Family and Finance Minister to National Accountability Bureau (NAB).

·         While this ends the 273-day long proceedings of the Supreme Court, the fears of a sharp devaluation of PKR are likely to come to the fore-front now. During the first trading session,  KSE-100 had already lost 1.6% intra-day while PKR closed largely flat at PKR 105.40/45 against the greenback.

·         We believe that ever since the report released by Joint Investigation Team (JIT) on 10th July, 2017, the market had already formed a consensus that PM will be ousted. However what comes as a surprise is the possible disqualification of Finance Minister, raising serious concerns on the continuation of the rest of the cabinet and stability of the currency.

·         We re-highlight the historical impact of federal level political jolts on Pakistan equities - the last time the sitting PM was ousted from office was when Prime Minister Yousuf Raza Gilani was disqualified by the Supreme Court on 19th June, 2012 on charges of contempt of court. Since it did not lead to any major political hiccup, KSE 100 declined by a mere 0.1% / 0.2% over 1 day / 1 week post the announcement and rallied by 6.5% over 1 month following the announcement.

·         The two most notable reactions on the market were witnessed post the resignation of President Pervez Musharraf (to avoid impeachment by the National Assembly) on 18th August, 2008 and oustment of PM Nawaz Sharif (due to imposition of Martial Law) on October 12th, 1999. Refer to the table below for details.

·         On currency front, President’s Musharraf resignation in 2008 had the most notable impact where PKR lost 2.8% over the following 1 month  - however this was amidst one of the worst BoP crisis in Pakistan’s history that led to an eventual entry into IMF program.

·         We believe that the equity market reaction will largely be hinged upon the official reaction from the sitting government, whereby if they opt to choose the unlikely path of agitation then the continuation of uncertainty will  keep Pakistan equities under pressure in the near term. In case the PM concedes, and there is a smooth transition of power to another member of PML-N, then the receding uncertainty is likely to translate into a sharp rally in Pakistan equities.

·         In the meanwhile, growing concerns on PKR stability should tilt sector allocation towards industries that stand to benefit from PKR depreciation, where we once again highlight our liking for Oil & Gas Exploration and Independent Power Producers.

·         We also re-iterate our call of 6-9% depreciation of PKR over FY18, where we project the currency to close at PKR111-114 against USD.

 

Offline Farzooq

  • Administrator
  • Senior Member
  • *****
  • Posts: 22000
  • Thanks Received: 196
    • View Profile
Re: Exchange rate weakness & KSE-100
« Reply #78 on: August 22, 2017, 04:26:07 PM »
Pakistan Economy : Sharp increase in CAD in Jul’17 warrants swift policy action

Current Account Deficit (CAD) recorded worst monthly figure of USD2.0bn in Jul’17, mainly led by faster pace of growth in trade deficit (up 78% YoY) as it surpassed remittances inflow by 1.9x vs 1.6x in 4QFY17.
Consequently, FX reserves are down sharply (USD1.5bn so far), which has overshadowed few silver linings including (i) soft oil price outlook, (ii) lower repayments due in FY18 vs FY17, and (iii) some respite in exports expected.
Policy-making challenges due to ongoing political uncertainty and rigidity on exchange rate issue, are unlikely to bode well for external account and efforts to float an international bond.
We believe an expected USD6-7bn drawdown in reserves in FY18E indicates import cover may drop down to 3.3-mths by end of Jun’18 from current 4.5-mths level.
This could trigger approx. 12% sharp devaluation in currency given historical precedence, though looking at current exchange rate policy rigidness we maintain our base case estimate of a more gradual depreciation in FY18 of 5-6% and possibly sharper devaluation in FY19E.
Jul’17 CAD at its worst monthly figure: Current Account Deficit (CAD) recorded USD2.0bn in Jul’17, marking the highest monthly deficit in many years (since FY09) vs USD1.5bn in Jun’17. While Jun’17 reflected number of seasonality driven trends (high end-of-year imports, high remittances in Eid), Jul’17 numbers in our view exclude such factors and hence fully reflect the current trend. Both drivers i.e. (i) accelerated import growth, and (ii) slowdown in remittances growth are expected to sustain in FY18, and completely overshadow few silver linings that still persist. That said, financial account which remained a key strength in FY17, ended up with only USD473mn surplus in Jul’17 due to absence of any material loan inflow (USD255mn inflow vs USD235mn repaid during the month); consequently, FX reserves fell by USD1.1bn in Jul’17.

Few silver linings in FY18…

#1 Oil prices outlook remains soft: Oil prices continue to hover around USD50/bbl, which are broadly expected to sustain on average despite recent extension in production cuts by OPEC countries as supply continues to build up. For Pak macro, soft oil price outlook remains a key positive given expectation of soaring fuel imports in line with increased economic activity. In FY17, upto 45% YoY increase in POL import volume led to approx. 30% YoY growth in value terms to USD10.9bn, supported by lower realized crude oil price (USD41/bbl) vs actual price in FY16 (USD48/bbl). While the volumetric increase may be lower in FY18 (upto 15% YoY expected), increase in realized oil price by 10% in FY18E (assuming full impact of increase in oil price in recent months to be reflected now) will likely lead to another 25% YoY growth in oil import bill to USD13.5-14bn.

#2 Repayments remain restricted: Lower external debt repayments due in FY18 (USD3.3bn) vs USD4.4bn debt repayment made in FY17 should serve as a respite to the FX reserves position in near-term. 

#3 Exports could see respite in some areas: We believe slight recovery in textile exports (benefit from higher commodity price, Euro strength, relief on cash flow side, zero rating etc) should bode well, though the scale of recovery in exports is expected to be small.

…but would likely fail to protect CAD: A mix of policy-making challenges due to ongoing political uncertainty and rigidity on exchange rate issue, could have adverse impact on the external account situation and may lead to decline in FX adequacy. Assuming exchange rate is not adjusted any time soon, some immediate measures to curb imports and strive to access some loans from commercial banks or Eurobond float will most likely be the path taken by the government in next few months. However, both political noise and concerns on exchange rate may likely remain as key concerns for foreign investors and could impact the success of floating an international bond. All in all, while Moody’s warned of credit negative events in recent months, Pakistan’s credit rating remains B3 with a stable outlook for now.

Exchange rate impact could be more pronounced: As such, foreign exchange reserves currently stand at USD19.9bn, which provides import adequacy of 4.5months. Looking at historical precedence, a simple correlation of balance of payments deficit vs currency movement in past 15 years indicates that an expected USD6-7bn drawdown in reserves in FY18E (taking import cover to an est. 3.3mnths) could trigger approx. 12% sharp devaluation in currency. However, assuming exchange rate flexibility is unlikely to be welcomed anytime soon, we maintain our base case estimate of a more gradual depreciation in FY18 of 5-6% and sharper devaluation in FY19E.

bma
TOP PICKS
Engro efert ogdc ppl pso dgkc luck hubc ubl hbl atrl nrl nml efoods aicl hcar searl

Tags: