In this article, I would apprise investors about the possible impact of Global decisions have on PAK ETF. Upcoming global developments such as FOMC (Federal Open Market Committee) and BoJ (Bank of Japan) monetary policy coupled with Brexit vote next week would certainly induce the risk of volatility in the regional currencies with the trend potentially trickling down to the local market. I opine that the volatility is likely to persist owing to the economic impact of Britain's potential exit from the EU.
FOMC's upcoming meeting on 15th of Jun'16 would be imperative for PKR/US$ parity as PKR (Pakistani Rupee has appreciated 0.5% MTD (month to date) due to a weaker dollar, increasing the pressure on the exports of Pakistan. This is mildly detrimental for export oriented textile sector (~1.8% of ETF) but good for the overall Pakistani stock market. However, any strength in USD could reverse the recent gains, I expect this to be limited due to the strong forex position of Pakistan. It is worth noting that Pakistan's foreign exchange reserves are record high at $21 billion.
As far as my input on FOMC is concerned, I have already written article indicating the status quo. If we look at the indicators of US Fed Funds futures data, the probability of hike has come down from 30% at the end of May to 0%. Moreover, US Treasury yields have also come down from 1.94% to 1.64%. Additionally, the U.S. financial markets have priced in only 17.6% probability of a hike.
BoJ monetary upcoming announcement would keep the Yen in the limelight as Yen has already experience appreciation with respect to the dollar. However, if we look at PKR/JPY parity, then yen is down 4.5% MTD. In my view, BoJ would opt for a status quo, further strengthening the PKR. This would bode well for Automobile sector (~3.2% of ETF) as on average ~50% of the parts and accessories of Pakistani Manufactured Automobiles are imported from Japan. Hence, highly sensitive to PKR/JPY parity.
In conclusion, within 12 hours, there would be a decision by MSCI that whether Pakistan would be reclassified into emerging market or not. Today, Pakistani equities roared and closed at a record new level, brushing aside any concerns of a possible delay in the status upgrade of Pakistan to MSCI EM Index. If Pakistan gets reclassified into emerging market index, then in order to understand its potential impact on PAK ETF, read my article named " PAK: Potential MSCI Re-Rating Calls for Upside".
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I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.