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Pakistan Market: May’18: Steep decline on political overhang

• The KSE-100 shed 6% MoM in May’18 amid worsening political and economic backdrop. Market participation dwindled significantly with average daily value traded declining 40% MoM to US$49mn. FIPI outflow rose to a 9mth high of US$73.2mn (partly MSCI rebalancing) with heavy selling in Banks and Cements.  
• Political uncertainty was fueled by ex-PM Sharif’s negative remarks pertaining to involvement in Mumbai attacks. For the appointment of caretaker PM, an initial standstill finally culminated into the appointment of former Chief Justice Nasir-ul-Mulk, which led to some relief in the market. On the economic front, SBP increased the policy rate by 50bps to 6.5%.
• We have a cautious view on the Pakistan Market with growing uncertainty on the outcome of the Elections will keep the market lackluster. We advocate availing dips in Banks, Oil & Gas, Textiles and Steel. Names we like include UBL, PSO, PPL, ENGRO, NML, HUBC, and ASTL.