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Fund Manager Review on Economy - May 2022

Sarmaaya Desk
Sarmaaya Content Team
Fund Name AUM No of Funds Market Outlook for future
NBP Fund Management Limited 170 bn 43 Positive
ABL Asset Management Limited 77 bn 30 Neutral
UBL Fund Managers Limited 117 bn 38 Neutral
Al Meezan Investment management limited 161 bn 33 Positive
National Investment Trust limited 89 bn 15 Neutral
NBP Fund Management Limited Review:

The benchmark KSE100 index fell by roughly 4.8% month on month to 43,078 points for the month of May-22.
Bears reinforced their grip on the market right from the start of the month, as investors confidence was shaken by concerns about the IMF program's postponement. Following the VONC last month, PM Shahbaz Shareef and his FM Miftah Ismail were expected to make rapid and tough decisions in order to restore economic stability and the IMF program. The program's success is dependent on the fulfillment of previous conditions (the removal of fuel and power subsidies), The currency market was also affected by the economic uncertainties, with the PKR falling drastically by 6% against the USD. However, by the end of the month, the government had finally hiked retail fuel prices, raising hopes for a restart of the IMF program. The MPC of the SBP increased the Policy Rate by 1.5 percent for the month, bringing it to 13.75 percent. CPI inflation in May was 13.8 percent, the most in 28 months, and with anticipated price increases in retail fuels and power tariffs, inflation is expected to rise even more in the near future.
During the month, Auto Assemblers, Chemicals, Food & Personal Care, Oil & Gas Marketing, and Refinery sector stocks outperformed the market. On the contrary, Auto Parts & Access., Cable & Elec. Goods, Cements, Engineering , Insurance, Technology, and Textile Composite sector stocks lagged behind. In participant-wise activity, Banks/DFIs and Individuals emerged as the largest buyers, with net inflows of around USD 32 million and USD 5 million, respectively. On the other hand, net outflows of around USD 20 million and USD 12 million were seen from Mutual Funds & Insurance Companies.
In terms of market outlook, we acknowledge heightened economic risks arising from deterioration on the external front due to elevated repayments on financial accounts in the short term, Likewise, the resumption of the IMF program also remains a key trigger, and extension in duration and size will also be looked favorably by the market. Side by side, the prospects of roll-over from the friendly countries and additional commitment from them also appear likely under an IMF program. Therefore, we continue to look favorably towards the market, whereby we expect the market to provide around 15-20% upside in CY22.

ABL Asset Management Limited Review:

May 22nd was an eventful month, with numerous events contributing to the equities index's decline. The index was driven down by a delay in IMF approval and the government's indecisiveness in raising fuel prices till the end of the month. The rupee depreciated by roughly 6% against the dollar, closing at around 198.46PKR/USD. Though there was a minor recovery in the index and appreciation in the rupee in the month's final days, the increase in petroleum products by PKR 30/liter was seen as a positive factor in the success of the IMF talks. In addition, the State Bank of Pakistan (SBP) hiked its benchmark interest rate to 13.75 percent, an increase of 150 basis points.
The KSE-100 index fell by 2171 points (4.8 percent MoM) to 43,078 points at the end of the month.
The average traded volume and value fell 4.7 percent and 11.9 percent MoM, respectively, to 115 million and USD 27.76 million. Foreign investors continued to sell by approving shares worth USD 8.81 million. Banks and individuals bought heavily in the domestic market, with net purchases of USD 31.76 million and USD 5.35 million, respectively.

UBL Fund Managers Limited Review:

With politics taking precedence over economics, the new government initially dithered on undertaking urgent policy measures to stabilize the economy, creating doubts on country’s return to the pivotal IMF program in the near term. The above unnerved equity investors, causing the local bourse to decline by over 7.0% at one point before recovering in the last few trading sessions when the government announced first hike (Rs30/liter) in retail fuel prices. Overall, the benchmark KSE100 Index fell 4.8% during May. Trading activity also declined with daily turnover averaging USD27.8mn as compared to USD31.6mn last month. Moreover, foreign selling continued amounting to USD 8.1mn during the month, while Banks/DFI mopped up shares worth USD 31.7mn.
Going forward, the market will take direction from any economic stabilization measures undertaken by the incumbent government, progress on IMF program, Federal Budget FY23 related news flow and movement in international commodity prices. From a fundamental perspective, we maintain a positive outlook on equities as the local bourse is currently trading at much discounted forward PE multiple of 4.3x as compared to historical PE of 8.0x. Also, market’s current earnings yield differential with 10Y PIB yield is 10.6% (23.3% vs. 12.7%) which is much higher than the average yield gap of 1.1% over the last 15 years.

Al Meezan Investment Management Limited Review:

During the month of May 2022, KSE-100 index went down by 2,172 points (down 4.80%) to close at 43,078 points. The average daily volume of the market stood at 252 mn shares, down by 11% on an MoM basis. Banks, Cements, Fertilizer, and Technology were the major negative contributors to the index performance. The major reason behind the decline in the stock market was the delay in the resumption of the IMF program as the new government was reluctant to increase fuel and electricity prices, which were later partially increased towards the end of the month. The resumption of the IMF program will not only allow the country to unlock further inflows but also help meet its maturing debt liabilities. Moreover, sharp PKR depreciation against USD, inflationary concerns, low forex reserves, and high fixed income yields kept the investor sentiments under pressure. While near-term volatility cannot be ruled out, we continue to maintain a long-term positive outlook on the equity market. We encourage investors to enhance their long-term exposures to the equities at these levels.

National Investment Trust limited Review:

The KSE100 index posted a return of -4.80% for the month of May 2022. An array of negative news resulted in the market posting a sharp decline during the month. Foremost among the factors was the sharp devaluation of the PKR against the USD with a decline of over 6% during the month making a historic low of 202/USD. The new government's decision to keep petroleum prices unchanged created doubts with regard to negotiations with the IMF. SBP raised its policy rate by a further 150bps during the month. Uncertainty on the political front also added to the economic woes. Monthly Average volumes stood at 251 million shares, a decline of around 13% on an MoM basis. Foreign investors remained net sellers during the month, with a net outflow of USD 8.82 million. Budget expectations coupled with the future course of negotiations with the IMF will determine market direction going forward.

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