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Intermarket Perspective - Pakistan Strategy 2017 - The Final Countdown

1. ​With gains of 46%, the Pakistan Market could not have had a better 2016. MSCI upgrade tailwinds can continue to rerate the market where P/E can go from 11.5x at present to 13.0x (+1sd above LT mean). We see the KSE-100 touching 54,500pts by June 2017 at which time we would consider gradually trimming exposure. Rapid product development under new PSX operator would provide a bull case while politics stands as the main risk.
2. Themes for 2017 include return of inflation and pre-election public spending. Both are near-term positives where we project IMS Universe profit growth at 18%YoY – after two years of decline. However, macro slippages may begin to hurt in 2018 and before that “sell the news” could make the Index labor in 2H2017, after EM upgrade becomes effective.
3. We thus see 2017 shaping up to be a year of two distinct halves. We like Banks, Construction and Staples while Fertilizers and Textiles are least preferred. Top picks are OGDC, UBL, BAFL, NBP, LUCK, DGKC & ASTL. Outside our coverage, we find EPCL, HUMNL, SPEL, JSBL & HMB as interesting scrips.