A Note from our Chief Investments Officer July 13, 2017
Dear Investor,
Equities listed on the Pakistan Stock Exchange are going through a rough period, due to the ongoing political uncertainty arising from the Panama Papers Case, which you might have heard of in the news.
As the JIT has recommended filing of reference against PM and his sons with NAB, the fate of Premier remains contingent upon the hearing of Panama Papers case in the Supreme Court from July 17. As a reaction to the news, the market has tumbled to reach near 44k, a level not seen before December 2016.
We expect the turbulence to continue for the near term until some clarity emerges how the government is expected to continue its remaining tenure. The Prime Minister has the option to resign or continue contesting the JIT findings in courts. However, considering the fact that this is the last year before new elections, the current year seems to be of utmost importance as government firmly rolls out its expenditure plans to attract public votes. The expenditure induces aggregate demand, driving the economic growth. Since Equities tend to perform in tandem with the economic growth, the continuation of current government is necessary to ensure stability in the financial markets.
Despite all the negative news, we believe the market has factored in most of the uncertainties in its valuations, which are now below their long term historical averages, indicating any positive development can trigger a sharp upward rally.
We feel long term investors should consider the opportunity to build into market weakness because of two reasons. One, most of the stocks are now priced very favorably with respect to dividend yield and earnings yield differential with interest rates, both of which are now their 12 year and 5 year best levels respectively. Secondly, attractiveness of local market versus MSCI Emerging Market Index has also increased because of more than 15% correction in the Index and thus increases likelihood of inflow from foreign investors that have been waiting for better opportunity due to concerns on local currency. Since 2008, the market has been twice down by more than 15% and it has resurrected sharply. We thus advise our long term investors to build into current weakness to realize healthy returns potential going forward.
For any queries, please call us at our Toll Free Number: 0800-62224 (0800-MCBAH) from 24 hours a day, 7 days a week where our friendly staff will assist you or you can email us at info@mcbfunds.com.
We look forward to assisting you continuously at all times.