KARACHI: Financial markets in the country were on fire on Wednesday as Prime Minister Imran Khan and his team managed to convince the Saudi government to lend a helping hand in fending off the looming balance of payments crisis faced by Pakistan.

The Saudi government’s financial support package of $3 billion in deferred oil payment and another $3bn in support of foreign exchange reserves were greeted by a strong rally at both the equity and the money market.

The stocks staged a spectacular rebound. The benchmark KSE-100 Index got off to a storming start on Wednesday and cracked through the ceiling to close the session with gain of 1,556 points (4.1 per cent). The benchmark Index settled at 39,271.12 points. The stock index surge represented the highest gain in a single session in three-and-a-half years. The bourse managed to add Rs254bn to its market capitalisation.

In the money market, the US dollar fell by Rs1.70 against the rupee in the interbank market and was trading at Rs132.25 in the early hours.

“After massive depreciation of 7.5 per cent on October 10, the Pak rupee strengthened by 1.5 per cent against US dollar on Wednesday; the possible impact of Saudi government’s assurance for $3bn to place in account of State Bank and another $3bn relief on oil payments,” said a senior banker at the end of day’s dealings.

Stock market registers highest gain in a single session in three-and-a-half years; dollar falls by Rs1.70 against rupee

A visibly happy prime minister confirmed in his Wednesday evening address to the nation that his visit to Saudi Arabia would be followed by sojourns in two other friendly countries. Economists expect Pakistan to be able to raise another $2bn to $5bn from visits to Malaysia and China, which should further ease the financial distress, at least for the foreseeable future.

Major market participants have assured investors that the Saudi deal would help ease the looming balance of payments crisis and replenish the fast depleting foreign exchange reserves.

Although Pakistan is unlikely to avoid negotiating a financial package with the International Monetary Fund (IMF), market strategists think that the financial support package offered by Saudi Arabia should help Pakistan buy time for implementation of structural reforms.

“The country is now on a slightly stronger footing to negotiate a less stringent bailout package with the IMF,” said a fund manager.

The CEO at the Pakistan Stock Exchange, Richard Morin stated that it was a very positive development for the bourse and the market was ‘right to react the way it did’. He lauded the efforts of the PM and his team.

Arif Habib, former chairman of the stock market, concurred saying that the economic assistance dispelled the clouds of uncertainty that were at the heart of the market meltdown over the last several months. “It provides a better view of the government’s plan to resolve the widening current account and fiscal deficit and to support the falling foreign exchange reserves, which has created confidence in the hearts of investors”, he said.

As excited investors began lapping up stocks that they could lay their hands on, all of the trading board turned deep green in the first few hours on Wednesday. More than 140 stocks closed at their ‘”upper circuit” representing the maximum permissible rise of 5pc in a single trading session.

Foreign investors seized the opportunity to take profit by selling stocks worth $9.5m, but the sell-off was absorbed to a great extent by the mutual funds which cherry picked shares valued at $7.9m. Mutual funds, currently the biggest institutional player in the market, retain liquidity and are not fully invested.

Yasir Qadri, CEO of UBL Funds, one of the largest five funds operating in the country with Rs75bn under its management, affirmed that mutual funds were retaining around 10 per cent cash and many might have invested one or two per cent on Wednesday in buying stocks available at attractive valuations.

Sectors contributing to the striking performance of stocks included Banks (+373pts), Fertilizer (+247pts), E&P (+238pts), Power (+138pts) and Cement (+120pts). Trading activity surged as traded value of share rose 30pc over the earlier day to $65 million.

Among stocks, the Index heavyweights the HBL, PPL, ENGRO, MCB, UBL, OGDC, Hub Power and Fauji Fertilizer cumulatively contributed 624 points to the index

Most market participants and brokers reckon that the sustainable performance of financial markets is contingent on financial commitments from China on the prime minister’s expected visit in the first week of November together with Pakistan’s ability to strike a soft-term package with the IMF.

Pulished in Dawn, October 25th , 2018

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