Morning Call about Turmoil in global equity markets

Morning Call about Turmoil in global equity markets

Karachi: Recovery in KSE will depend on Stocks with strong domestic footings

The KSE100 index rebounded yesterday, as the global indices recovered on the back of US Federal Reserve pledged to keep interest rates at its lowest level for next for years.

According to Arif Habib Limited, the benchmark index jumped by 2.5% yesterday to end the day at 11,311.29 levels. The KSE100 Index following regional indices had dropped by 9.5% (a decline of 1,155.5 index points) till August 09 2011, as foreign investor offloaded resulting in an outflow of USD 4.3mn during the period. This global turmoil was instigated by S&P lowering US rating from AAA to AA+ as its felt US decision to increase its debt ceiling and reduce deficit are below par. The major contributor to this decline were OGDC (-15.6%), MCB (-10.9%) NBP (-18.3%) as they pushed index lower by approximately 562 points.

Regional performance
Subsequent to S&P lowering of US rating, the global indices went for a free fall, declining across the board. During the period between August 1 to 10, 2011 major regional indices went down on average for more than 10%. The major loser was KOSPI (-17%) Index followed by Hang Seng and BSE Sensex Index which were down by 12% and 8%. KSE-100 Index on the other hand, suffered a decline of 7% during the period. Yesterday, European and US Indices went for a beating on European debt concerns, fears of France rating cut which later denied.

OGDC continues to be the major Index dampener
OGDC, though recovered yesterday by PKR 3.05/share, turned out to be the major Index dampener during this turmoil as it lost its vigour by PKR 24/share (15.6%) since July 29, 2011, contributing around (423 points) in the total fall of 9.5% by the KSE-100 Index. Furthermore MCB, NBP and PPL cumulatively pushed the index down by 188 points, which despite being sizeable, is nothing compared to that of OGDC; thus recovery of the Index, once again will heavily rely on the performance of OGDC. Arif Habib Limited believes that the Stock of OGDC will be in the limelight with its FY11 financial result around the corner.

FIPI registered a net selling of USD 9mn
After S&P down rated USA’s sovereign rating from AAA to AA+ international market witnessed a panic selling which subsequently led to an outflow of USD 11.9mn in last three trading days. Arif Habib Limited believes that the outflow will continue to be a spoiler for the local bourses as it has witnessed an outflow of USD 41mn since July 15, 2011.

The Stocks with strong domestic consumer base may be the safest bet
Arif Habib Limited is of the view that the market may feel the aftershocks of global markets with major fear of foreign selling keeping the KSE under pressure. However Arif Habib Limited believes that these dips should be taken as an opportunity to go long in stocks with heavy reliance on domestic consumption, which will shield them from fears of recession in European and US economies. Arif Habib Limited’s preferred list includes POL, PPL, OGDC, PSO, APL, HUBC, FFC, PTC, LUCK and ACPL.

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