EUR 4.42 For Business Accounts Only

Pakistan Market: Valuations are eye-catching; FM funds may return

• The KSE-100 Index saw another weak session yesterday, its 3.7% decline taking the MTD fall to 11.2%. The Index is now at its lowest level since early Dec'16 and down 15.1% from its CYTD peak. Volumes remained on the lower side with investors sitting on the sidelines ahead of the Eid holidays.

• Flows and sentiment continue to detract from fundamentals, in our view, where market P/E of 10.2x is now at a 20% discount to MSCI EM. Several stocks in our coverage are trading below 6x and 5-6 names are offering double-digit D/Y. Our recent conversations suggest this is beginning to catch the attention of FM funds again. EM funds may now also be tempted by valuations of the main 6 MSCI names.

• As local focus turns to fundamentals and if FM funds become buyers again, the market could find support in July. So far, the market’s performance in June has closely mirrored the UAE and Qatar performance immediately after their own upgrade to EM. By this token, gains of 23% for UAE and 12% for Qatar in Jul’14 are a promising precedent. At current levels, our top picks are MCB, ABL, PPL, APL, MLCF, EFERT and AICL. We retain Sells on HASCOL and HCAR.