Economics: recovery muted so far
Companies having foreign collaboration registered in October 2009
The Securities and Exchange Commission of Pakistan (SECP) registered 197 companies including 18 foreign Companies during the month of Oct., 2009. The total corporate portfolio as on 31st Oct, 2009 comprises of 53,977 registered companies. Foreign investment from diversified geographical location of countries around the globe reflects restoration of confidence in Pakistani markets and economy as investors in these 18 companies belong to China, Canada, U.S.A., U.A.E., U.K., Italy, Kazakhstan, North Korea, Lebanon, Netherlands, Panama, Philippines, and Singapore. Of these 18, foreign invested companies 4 have been registered in construction sector four in trading sector, 2 companies in power generation sector and 2 in mining and quarrying sector. Other 6 companies registered with the Securities and Exchange Commission of Pakistan belong to cable and electrical goods, healthcare, information technology, transport, textile and miscellaneous sector. Total 197 companies incorporated during Oct., 2009, comprise of 3 public unlisted companies, 179 private companies, 12 single member companies and 3 association not for profit under section 42 of the Companies Ordinance, 1984 (the ‘Ordinance’). Total authorized capital and paid up capital of companies, incorporated during Oct, 2009 amounted to Rs. 2,318 million and Rs. 304.21 million respectively. During Oct, 2009, number of new incorporation was highest at Lahore, whereby 66 companies have been registered, followed by Islamabad registering 61 companies, Karachi with 52 companies. Peshawar, Faisalabad Multan, and Quetta registered 6, 5, 4 and 3 companies respectively.
Major share of new incorporation was witnessed in the trading sector comprising of 39 companies, followed by 31 in services, 22 in construction, and 17 in information technology sector. During the month, the Commission granted licences to 1 association not for profit under Section 42 of the Ordinance, for promotion of education.
November 19, 2009
50bp DR cut, measured approach continues
Acknowledging the support required for real economic recovery whilst monitoring risks to macro stability, the SBP has opted for a gradual monetary easing stance with a 50bp cut in policy rate to 12.5% (announced yesterday).
Despite marked improvement in 1QFY10 macro indicators, sequential progress and growth in the real economy remains somewhat uncertain according to the Central Bank given pressure on fiscal financing and persistence of inflation.
We expect a positive initial response from the market, however uncertainty on fiscal account and security situation will continue to pose a question mark on the ability of the SBP to continue easing and hence keep stock market optimism in check.
Our view remains that economic recovery hinges on external & fiscal account where timing and magnitude of inflows (non-IMF) should lead SBP monetary policy decision in the next MPS due Jan-10.
KASB Securities and Economics Research
26th November, 2009
Monetary Policy: Hostage to foreign aid?
The State Bank of Pakistan has continued with its cautious approach and reduced the policy discount rate by 50bps to 12.5%, generally in line with consensus expectations. This is 150bps lower than its recent high of 14%. In its policy announcement the Central Bank based its decision on:
• Uncertain fiscal funding outlook especially due to lack of clarity regarding the timing of non-IMF funds inflow
• Potential inflationary risk emanating from supply-side factors such as production bottlenecks in the agricultural supply chain, expected increase in utility prices, and recent surge in international commodity prices.
We realize that the Central Bank (SBP) has limited maneuvering space given the high dependence of Pakistan’s economy on external funding at the moment. The main fear, we feel SBP has, is that if it eases monetary conditions too soon and too fast, the consequent credit demand jump from the private sector may put strain on banking system liquidity given the continued high public sector credit needs. So, it has decided to err on the cautious side. We believe however that this approach may be putting the Central Bank behind the curve in monetary policy thinking and implementation!
KSE: Insipid November-09 lack of triggers
Insipid Nov-09: KSE-100: +0.5% MoM; Volumes -40% MoM
Political uncertainty due to NRO saga combined with a largely expected outcome of the Monetary Policy (50bp cut in Discount Rate) and lack of notable excitement in the MSCI Nov review resulted in a relatively lackluster Nov 09 for KSEE. As the index rounded off with a 0.5% MoM gain, average volumes depicted 40% MoM decline where gross foreign activity also registered a 38% MoM decline.
Politics and foreign flows to drive sentiments into year end:
As a relatively remunerative CY09 draws to a close (+57% YTD), preservation of gains could become a priority for part of the domestic and international investor base. However the following could lead to bouts of volatility:
• News flow on NRO and judiciary’s stance on the same likely will dominate politics but abolishment of 17th Amendment could provide some respite to govt-opposition friction. Efforts to harmonize relationship amongst coalition partners (MQM, ANP & PPP) in post NRO scenario could also be crucial.
• While IMF is likely to sanction US$1.2bn tranche in mid-Dec, detailed review and additional benchmarks are key to KSE’s reaction. We believe the energy sector (circular debt and power subsidy) will remain a focus area for IMF.
• Disbursements by US under Coalition Support Fund and outlook on FoDP + Kerry Lugar Bill related flows likely will also garner interest as these flows hold the key to Pakistan’s macro balances.
• MCB-RBS deal nears its Dec 31st deadline with regulatory snags still unresolved which could remain on investors’ radar screens.
What Dubai crisis means for Pakistan? clarity yet to emerge:
The initial reaction to Dubai crisis has been negative with KSE-100 index losing over 2% in a day and CDS spreads widening by 150-200bp. Concerns include a reduced global risk appetite which could dampen FPI (a key driver in the past few months) and hurt prospects of potential Eurobond by Pak early next year. The swing factor however would be if regulators in developed economies prolong stimulus packages in response to the Dubai event, which could counter the potential drag on risk appetites. Pak Banks’ exposures to Dubai crisis (likely to be within manageable limits) would also be keenly tracked. To date, UBL has disclosed US$20mn (0.4% of loans) exposure to Dubai World.
Investment Preference – Engro added to the list:
Our liking for the energy chain remains intact where stronger oil price outlook and robust industry volumes have led to an upgrade in POs across E&Ps (Picks: POL, PPL) and OMCs (PSO & APL). In addition, we have also added Engro Chemical to our list of preferred plays as it offers blanket exposure to Pak economy via its presence in the under-penetrated food, urea and energy sectors.
KASB Securities and Economics Research
Forex reserves at $13.72 billion
Foreign exchange reserves declined to $13.72 billion in the week that ended on November 28 from $13.90 billion the previous week, the State Bank said. Reserves held by the State Bank were $10.14 billion as compared to $10.27 billion a week earlier, while those held by commercial banks also declined to $3.58 billion from $3.63 billion the previous week, the State Bank stated.
Foreign reserves reached a record high of $16.5 billion in October 2007 but lowered steadily to $6.6 billion by November last year, primarily due to a high import bill. An International Monetary Fund (IMF) emergency loan package of $7.6 billion agreed in November helped prevent a balance of payments crisis and shore up reserves. The IMF, which increased the loan to $11.3 billion in July, has disbursed over $5 billion.
December 4, 2009
Three month fiscal deficit at 1.5% of GDP
According to the Ministry of Finance, Pakistan’s budget deficit for the first three months of the 2009/10 fiscal year was Rs 223.67 billion ($2.68 billion) or 1.5% of gross domestic product (GDP). The International Monetary Fund (IMF) and the government had targeted a budget deficit for the three months ending on September 30 of Rs 194 billion rupees equivalent to 1.3 % of GDP.
State Bank Governor Syed Salim Raza had told Reuters earlier that Pakistan would meet its fiscal deficit target in the first six months of this fiscal year despite the lag in the first quarter. Pakistan had given an assurance to keep its fiscal deficit at 4.9% of GDP in the 2009/10 fiscal year in accordance with a loan agreement with the IMF. The IMF bailed out Pakistan in November 2008 with a $7.6 billion emergency loan package to preempt a balance of payment crisis during a time of sharp political and economic upheaval.
3 December, 2009