FY18 Review: Politics remained the major headline
Political bearings had the most profound impact on market sentiments this year (FY18 returns: -10%YoY) with key developments including: 1) SC declaring Nawaz Sharif ineligible to continue as party head while dismissing all political actions taken by him since Jul 28'17 (Panama case verdict), 2) TLP's 21 day long sit- in the federal capital culminating in the resignation of the Law Minister, 3) inclusion of Pakistan in FATF's watch-list and 4) announcement of tax amnesty scheme in Apr'18 (PkR65-80bn reportedly has been collected so far with the scheme being extended till Jul 31'18). Economic concerns also came to the fore during the year with CAD rising to US$15.9bn in 11MFY18 as Brent/ArabLite were up 27%/28.5%YoY, currency depreciation of 15.9% and interest rate reversal with a hike of 75bps. These in combination with event based negativity in key sectors (fine imposition on HBL, increase in minimum pension amount to PkR8000 per month for bank retirees by SC and imposition of windfall levy on certain licenses in Oil&Gas space) and unabated foreign selling (net outflow of US$288.5mn in FY18) further marred index performance. Over the coming weeks, investors will be eagerly tracking the pre-election political developments looking for clues to determine the potential outcome. A wait and see approach is likely with the market expected to trade in a thin band. In this backdrop, we prefer investing into defensive, dividend yielding names like MCB, POL, HUBC, KAPCO, EFERT and FATIMA. .
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