Monthly Updates, Pakistan
Monthly Comment Pakistan – January 2018


During the month, the Fund appreciated by 6.0% as compared to the benchmark’s MSCI Pakistan Net (SEK) which returned 3.5%. The weaker (4.5%) USD vs Swedish Krona meant that the return in USD (and Rupee) was significantly stronger. Out-performing exposures in the current month were Materials, Consumer Discretionary and Staples, and Information Technology. The under-performance stemmed from Real Estate and Industrials. During the month, we increased our exposure in Cements and Engro Corporation while trimming our exposure in Utilities and Steels.


If research studies are correct that investors plough in more capital at the beginning of the year and that fundamentals triumph market sentiments; then, Pakistan’s stock exchange witnessed both in the monthly rebound in KSE 100 Index of 8.84%. The third best January returns in the world were, this time, driven by highest-monthly foreign inflows – USD 86mn – since April 2014. Here we have an example of foreigners selling at the peak market at the time of MSCI Emerging Market inclusion and buying at a range closer to the bottom as valuations sank.

Politically, the PM-designate of PML-N, the ruling party, Shahbaz Sharif, was able to placate the religious right-wing who called off their protests and announced Senate elections for March 2018. Both factors have reduced the political heat amidst a national uproar over societal issues featured by the media. Geopolitically, the government responded to President Trump’s tweet against Pakistan in a mature fashion garnering immediate support from China’s foreign office. A telephonic conversation between General Votel, Central Command Chief, helped placate Pakistan’s fear of a full-blown crisis with the United States.

The government has hinted at raising further bonds in the Global Debt market in February 2018 to cushion against falling reserves as external-debt repayments loom and government shows unwilling to going to the IMF. In the process, we have noticed several positive steps being taken to rein in Current Account Deficit (CAD) including: 5% currency depreciation, 25bps increase in the Discount Rate, expected Tax Amnesty, export subsidy, reduction of duties on textile raw materials, imposition of regulatory duties on non-essential imported items, and finally, improving flow of remittance through official channels. The marginal improvement is noticeable but the magnitude of improvement required to ensure that economic growth is not derailed is significant. We are vigilantly monitoring the situation. There has been a temporary ban on the expansion of Cement plants, on grounds of environmental degradation, allaying fears of an imminent price-war among cement producers. Although, the matter is sub judice it may, in all likelihood, act as a deterrent leading to delays in most expansion plans and cancellation of others. Moderation in investors sentiment was visible during the Initial Public Offering (IPO) of an agri-based company, MATCO Foods. The company was marginally oversubscribed raising USD 7mn hinting that investors are not euphoric.

The Index’s bottom in December had shown an approximate Price to Earnings (P/E) ratio of 7.5x that almost touched 9x at the beginning of February 2018. Reasonably valued in light of tense elections ahead. Of late the Supreme Court of Pakistan has been contemplating removing the “lifetime” ban on disqualified politicians, primarily Nawaz Sharif whose trial is expected to conclude within a month. We expect a range-bound activity in the market unless the CAD issue is resolved entirely, although this may take a few quarters, once elections are behind us (expected July 2018). Your Fund Manager is investing your money into businesses (read: business managers) who have demonstrated strong entrepreneurial skills in the deployment of capital at higher returns. Our top two bets, Lucky Cement and Engro Corporation, are key standouts and deliver strong earnings growth at scale in newer business ventures, continuous diversification, and exploration of strong business opportunities. Dynamic leadership of this nature is hard to find at that scale among other liquid names on the Pakistan Stock Exchange, of course, at reasonable valuations.


“Capital invested in a fund may either increase or decrease in value and it is not certain that you be able to recover all of your investment. Historical return is no guarantee of future return. The state of the origin of the Fund is Sweden. This document may only be distributed in or from Switzerland to qualified investors within the meaning of Art. 10 Para. 3,3bis and 3ter CISA. The representative in Switzerland is ACOLIN Fund Service AG, Affolternstrasse 56, CH-8050 Zurich, whilst the Paying Agent is Bank Vontobel Ltd, Gotthardstrasse 43, CH-8002 Zurich. The Basic documents of the fund as well as the annual report may be obtained free of charge at the registered office of the Swiss Representative.”  

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