EUR 4.56 For Business Accounts Only

Pakistan Market: 2Q results fail to excite; macro/political risks taking center stage

• Almost 80% of companies we track have announced 2QFY17 results where normalized profits are flattish (+9%QoQ), a trend that is in place since FY15. This is largely due to range-bound profitability for Index heavyweights Banks and E&Ps. Stocks posting positive earnings surprises include MTL, APL and CHCC; all three are in our top picks.
  
• Underlying trends point to continued pain for defensive sectors (Fertilizer, Power, Staples) while cyclicals are enjoying a demand upsurge led by Autos, OMCs and Construction/Building Materials. Banks are not yet following the economic uptick due to drag from maturing long-term bonds amidst soft interest rates.
  
• As E&Ps rebound off a low base, we expect headline growth to accelerate in the second half of the fiscal year, with 2017 projected to deliver 18.5%YoY growth. However, given the Pakistan Market trades at a multiyear high P/E of 10.95x, we feel investors may start to attach greater weight to top-down factors such as politics/security and Fx reserves