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Current Account-Trend & Underlying Dynamics

The CA deficit has contracted by 65%YoY to US$504mn in 5MFY11 and the CA itself has recorded a surplus of US$494mn across Sep’10-Nov’10 (surplus in each month). Improvement has been driven by a manageable trade deficit and strong remittances. Dec’10 data now indicates that the trade deficit has widened by 20%MoM while remittances have contracted by 7%MoM (but up 24%YoY). As a result, the CA may slip into deficit in Dec’10. Delving deeper, Dec’10 imports are up 20%MoM (up 29%YoY) likely driven by higher oil payments. At the same time, Dec’10 exports are up 20%MoM (up 35%YoY) with impetus provided by the textile sector. Higher oil prices should have a positive bearing on OMCs (preferred pick: PSO) due to potential inventory gains while robust textile exports indicate that higher input costs are likely being passed on (preferred textile pick: NML). Moreover, strong YoY remittances trend bodes well for the cement sector (top picks: LUCK & DGKC)..

AKD Research
12 January 2010

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