Analysis: Impact of US rating downgrade on Pakistan markets
Economists are not certain that world economy is going to face another recession rather they say every market gets certain hiccups at the time of recovery.
However, Pakistani market seems to be independent in their ups and downs over the long run, US downgrade and global stocks fall will not impact Pakistan stocks though certain shocks or hiccups can occur but on the whole Pakistan markets has no correlations with downgrading of US rating.
Pakistan equity market seems to pick up again from Monday ahead of blue chips results. Standard & Poor's lowered United States (US) long term rating to AA+ on Friday mainly because of rising debt burden and budget deficit on back of political consequences that led US economy towards the brink of default.
Though, US agreed to raise the debt ceiling in the start of the week but suspicions of recession and the rise of European crisis wiped $ 2.5 trillion off world stocks this week. Earlier on Friday expectations regarding global market turmoil, fears of double dip recession and worsening European sovereign debt dragged Pakistan equities to dropped 471 points or 4 percent.
In upcoming week, Pakistan equities have enough data points on the domestic front for determining market direction. Initially market reacted on news of US debt burden and US downgrade rating issues along with regional and international markets but Pakistan equity market will take its direction accordingly.
The financial results season is going on and healthy result announcements by heavy weight companies including Oil and Gas Development Company (OGDC), Pakistan Petroleum Limited (PPL), Pakistan State Oil (PSO), Indus Motors and Unilever Pakistan in upcoming week would boost up investors' interest and would create brisk activities in the market.
Recoveries in commodity prices will also act as a fantastic opportunity for investors to invest in local commodity markets, filthy production of cotton in Kharif season is an added value. In money market central bank's decision to reduce policy rate by 50 basis points (bps) would also attract investors to invest their money in money market.
The only possible chance of economy derailing would be political scenario, Pakistan being borrower of funds from World Bank and IMF would impact but proactive strategies and policies by the government can save Pakistan's economy from the global turmoil.
Pakistan and Islamic banking industry being the survivals of subprime crisis could support the economy. Investors should spend in high yielding shares and in scrips of those companies which are semi-government as such shares do not heavily move including OGDC, PPL, PSO, Pakistan Telecommunication Company Limited (PTCLA), Sui Southern Gas Company (SSGC), Sui Northern Gas Pipelines Limited (SNGC), Kot Addu Power Company (KAPCO) and others.
While, investments in sectors having growth potential like fertilizers, cement, automobile, and oil and gas would be more attractive from investments perspective.
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