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Pakistan Strategy_FY20 rise reflects tenacity - NSS curb could open doors, (AKD Daily, Jul 01, 2020)

AKD Daily

Pakistan Strategy: FY20 rise reflects tenacity - NSS curb could open doors

• Yesterday’s notification by the Finance Division to limit institutional participation in National Savings Scheme instruments has the potential to support interest in high D/Y stocks, where corporate funds, trusts and other domestic financial flows may deepen long-term institutional shareholding, supporting equities in a low rate setting where low-risk alternatives are scarce
• Countering 2HFY20 uncertainty in the context of tough macros, weak demand outlook and persevering economic policies to tackle persistent “twin-deficits”, the KSE-100 index returned 1.5%YoY, breaking the rough spell of negative returns through FY18-19, while recording healthy uptick in avg. volumes (+41.3%YoY for KSE-100) and value traded (up 14.7%YoY to PkR7.2bn).
• Large unhindered FIPI outflows continued, with FY20 cumulative outflow of US$284.9mn (softer than US$351.8mn outflow in FY19) continuing the trend set in motion from FY16, while the mantle of absorbing these outflows was largely taken over by Individuals (US$213.2mn), Insurance Cos (US$127.6mn), Funds, Trusts & Others (US$31.5mn) and Companies (US$26.8mn).
• Sectoral performance through the year masks significant portfolio alignments taking place throughout the year, where we bifurcate returns in to two halves highlighting relative underperformance for mainboard sectors in 2HFY20, while relative to intra-year KSE-100 index high (on 13th Jan), mainboard sectors are shown to clearly lag behind, with investors aligning portfolios to unconventional sectors, relatively cushioned in the post COVID-19 backdrop
• We continue to advocate for Banks (on valuations), E&Ps (upward momentum in global crude prices, coupled with external pressures forcing PkR depreciation), Cyclicals (particularly leveraged – DGKC and MLCF) and Textiles (NML, export orders despite slowdown and portfolio value). In addition to the usual suspects, technological scrips have lit trading screens worldwide where we have a keen liking for Systems Limited engaged in the business of software development & implementation services.

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