Tensions 🌍, Prices ⛽, Policy 📊

Another Week, Another Pulse!

If you thought the holiday break would slow things down, you picked the wrong week. From rising tensions in the Middle East to fuel shocks back home, the past few days gave markets and wallets no time to breathe.

Global developments set the pace. Signals from Donald Trump about holding off on potential strikes against Iran briefly calmed markets, even though Iran denied any such talks were taking place. That was enough to push oil prices sharply lower, with Brent and WTI both seeing double-digit percentage drops in a single session. Stock markets bounced back just as quickly. Still, the bigger picture remains uncertain. Saudi Arabia warned that oil could climb as high as $180 per barrel if the conflict escalates, and Iran’s stance on the Strait of Hormuz continues to keep traders cautious. Even the World Health Organization has started preparing for worst-case scenarios, highlighting how serious the situation could become.

At the same time, the Strait of Hormuz continues to sit at the center of attention. Iran has stated that the route remains open for international shipping, while reserving the right to restrict passage for what it classifies as “enemy vessels.”

Back home, the impact was immediate. The government increased the levy on high-octane fuel from Rs 100 to Rs 300 per litre, pushing its price up to Rs 535. In response, Shehbaz Sharif banned the use of high-octane fuel in government vehicles. Kerosene prices also saw a steep increase, adding to the pressure on everyday consumers. At the same time, the decision to keep overall fuel prices unchanged for another week is costing the government around Rs 45 billion, while diesel subsidies continue to quietly build up. A major policy decision is now due, where the government must choose between a broad fuel subsidy costing over Rs 120 billion or a more targeted relief approach for lower-income segments.

Commodities reflected the global uncertainty as well. Gold prices in Pakistan dropped sharply by Rs 43,600 per tola, following a significant fall in international markets where prices hit their lowest level in four months. This comes after one of gold’s worst weekly performances in decades, as expectations of higher global interest rates gained momentum.

On the economic front, there were some encouraging signs. Pakistan recorded a current account surplus of $479 million in February, helping reduce the overall deficit for the fiscal year. Foreign exchange reserves also saw a slight increase during the week. However, investment flows remain under pressure, with foreign direct investment declining by 33 percent to $1.195 billion during the first eight months of the fiscal year, largely driven by reduced inflows outside of China.

There were also mixed developments on the external financing side. The Asian Development Bank granted a final one-month extension for a delayed $360 million infrastructure project while also indicating a much larger commitment of around $10 billion to Pakistan over the next five years under its upcoming partnership strategy. It is a reminder that while short-term challenges persist, long-term support is still in place.

Meanwhile, one quiet but important shift continues to reshape the economy. Digital payments now account for 92 percent of retail transactions, according to the State Bank of Pakistan. It is a significant structural change that often goes unnoticed amid bigger headlines.

And just as things were settling, another pressure point emerged. Power companies have requested a further increase in electricity tariffs for April, adding to the hike already passed on to consumers this month.

🎧 Tune in to this week’s Pulse:

Youtube - https://youtu.be/X6seTXMbh5o

The Pakistan Stock Exchange (PSX) remained under pressure this week, with the KSE-100 index falling 1.01% on Thursday and closing at 152,740.38, while weekly performance declined by 0.73%. Trading stayed range-bound as geopolitical tensions and rising energy prices kept investors cautious.

Despite the negative sentiment, macro data provided a mixed backdrop. The current account posted a surplus of $427 million in February, improving from $68 million in January, while the Real Effective Exchange Rate eased to 102.54. Large-Scale Manufacturing showed strong growth, up 10.5% YoY and 12.1% MoM, and IT exports reached $365 million, up 20% YoY. However, rising yields in the T-bill auction signaled tightening conditions, adding to the cautious tone in equities.

Partnership businesses to get capital market access

The Securities and Exchange Commission of Pakistan has proposed allowing partnerships, LLPs, and AoPs to access capital markets by using their historical financial track record after converting into a company, instead of meeting the current two-year profitable company requirement. The move aims to widen the pool of listed companies and improve capital access, while maintaining investor protection through strict audit and disclosure standards. The proposal is currently open for public consultation and, if implemented, could encourage more businesses to formalize and list.

Rs 14,000 vs. Rs 4,400: The Fertilizer Price Gap 🚜📊

The closure of the Strait of Hormuz has created a massive disparity in the fertilizer market. International Urea prices have spiked to Rs 14,000+ per bag, while Pakistan’s domestic production remains at approximately Rs 4,400.

Why the Rs 10,000 Difference? 

This gap represents the difference between the landed cost of imports (due to global supply shocks) and the price of local production. Because Pakistani manufacturers use indigenous gas, they are currently shielded from the massive energy costs hitting factories in Europe and the Middle East.

Sector Case Study: AL Habib Islamic Stock Fund 

When looking at the Shariah-compliant equity category, the AL Habib Islamic Stock Fund currently holds the highest 3-year historical return. A look at its latest sector allocation reveals a specific focus on this local advantage:

Fertilizer Exposure (6.65%): The fund holds a direct stake in companies that currently provide a ~Rs 10,000 per bag price advantage over international imports.

The fund's 3-year lead is a matter of historical record, but its current 6.65% weight in Fertilizers shows how it remains positioned to interact with this price gap. As global import costs rise, funds with significant weightings in self-sufficient local sectors remain a key area of study for market analysts.

Analyze the full Fertilizer weightings and performance stats: 

https://behtari.com/mutual-funds/al-habib-islamic-stock-fund

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