June 23, 2016 (JS Research Beep)
(PDF report is also attached)
- Pakistan is waking up to global stocks plunging, after results from Britain’s referendum on membership of European Union (EU) putting the ‘Leave’ campaign ahead. ITV is presently predicting a 85% chance of this happening.
- Pound sterling has tumbled by as much as 9.5%, the Euro has declined the most since it was introduced in 1999 and Yen (safe haven) has surged to its strongest level since 2013. Crude oil futures have fallen sharply as well, while Gold (safe haven) is up 7.5%.
- While we don’t expect any significant impact on local fundamentals, we believe fallout on local equities is a strong possibility if final results confirm Britain’s exit from European Union.
- Our benchmark KSE-100 index came down by almost 11% at the start-of-the-year in reaction to meltdown in global equities (international markets crashing by ~20%) during the period.
- With many international experts expecting a similar decline in international equities (~20%), a 10% decline in local equities cannot be ruled out in the short-term. However, recent reclassification to MSCI Emerging Markets from Frontier Markets is likely to absorb the impact in the long-term, in our view.
- We also highlight Pak Autos (importers from Japan) and Pak Textiles (exporters to Britain & EU) as major losers, where appreciation in Yen and depreciation in Pound Sterling and Euro are likely to significantly impact their fundamentals. Significant decline in oil prices is also likely to hurt oil companies.