Monthly Updates, Pakistan
Monthly comment Pakistan – September 2017

During the month, the Fund went up by 2.3%% as compared to the benchmark’s MSCI Pakistan Net (SEK) return of 6.4%. September 2017 saw some pullback in the blue-chip companies after a sharp decline in the market since Pakistan’s entry into MSCI Emerging Market. Underperforming exposures in the current month were the Materials and Energy sectors whereas Consumer Staples was the outperforming contributor.

Fears over PKR depreciation against the USD kept most investors at bay despite a sharp month on month contraction in the Current Account Deficit (CAD) from USD 2.1bn to USD 550m. Cushioning the contraction were remittances clocking in at USD 1.95bn in August versus USD 1.76bn in the same month last year and increasing Foreign Direct Investment (FDI) to USD 457m in 2MFY18 versus USD 179m in 2MFY17. Pressures on the currency will keep mounting until a new strategy evolves. This seems improbable in the short-run as the current Finance Minister, Mr Ishaq Dar, has been indicted by the National Accountability Bureau (NAB) on charges of money laundering post the Panama Leaks investigation.
In contrast, the economic growth story is resiliently nudging forward and almost all participants seem be experiencing less doubts on growth clocking in at more than 5% for the next few years. Despite external vulnerabilities, fresh commitments from international lenders worth USD 3bn present a case of potentially long-term economic growth allaying short-term currency pressures. The IMF has hinted that by introducing policies to arrest the growing CAD Pakistan may be able to avoid this situation. However, whether this will be achieved through tariffs or currency depreciation or a combination of the two, remains unanswered.
Politically, the ousted Prime Minister’s wife, Kulsoom Nawaz, won back the lost National Assembly seat. Largely considered a stronghold of the ruling party, PML-N, the margin of victory did however narrow substantially hinting that next general elections may witness a contraction in PML-N’s popularity. In an attempt to reduce political friction, the ex PM also appeared in his NAB trial leaving a good impression that there may not be a direct confrontation between the political set up and the judiciary. The cases against Sharif family are likely to be concluded by February 2018 (as per Supreme Court orders) until then the pendulum can swing either way and political noise may continue to overshadow attractive valuations of 8.3x Price-to-earnings (P/E) ratio.

Infrastructure investments – an important reason for continued strong growth (picture from Gwadar)

Capital invested in a fund may either increase or decrease in value and it is not certain that you will 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, Stadelhoferstrasse 18, CH-8001 Zurich, whilst the Paying Agent is Bank Vontobel Ltd, Gotthardstrasse 43, CH-8022 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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