EUR 4.42 For Business Accounts Only

Pakistan Strategy: Sudden slide in the PkR; stability hereon is likely

• The PkR saw 3% depreciation vs. the US$ yesterday with the interbank rate closing at 108.24. This is against 0.4% depreciation in full-year FY17 and 2.9% in FY16 (average depreciation since 2014 is 1%pa). With the SBP stating that this will address the emerging imbalance in the external a/c, it appears that the central bank chose not to intervene.

• Hereon, the PkR can (i) continue to slide uninhibitedly, (ii) consolidate around 108 levels, or (iii) retrace today’s slide back towards 105. We think the second scenario has highest likelihood as macro deterioration is not severe; this is corroborated by the SBP press release stating that underlying fundamentals justify the new exchange rate level.

• E&Ps, IPPs and Textiles are clear winners with US$-denominated revenues. OMCs, Autos, Steel & Chemicals and other commodity importers are at highest risk. This will be Neutral for Banks, Cements and Fertilizers. That said, our financial models already incorporate a degree of PkR weakness. Selected stocks benefiting from a weaker PkR are OGDC, PPL, NML, HUBC and FFBL.