A Note from Chief Investment Officer
“IF YOU ARE WAITING FOR THE RIGHT TIME TO INVEST IN STOCK MARKET, IT IS NOW!”
The stock market with the start of CY15 rallied as KSE-100 and KMI-30 appreciated by around 7% in the month of January 2015. Subsequently we witnessed substantial correction of over 17% in KSE-100 index and 14.86% in KMI-30 during the months of February and March 2015. No doubt, the investors will be concerned and would like to know reasons for the recent downturn. If we look into the reasons, the following factors can be attributed to this decline at KSE:
a. Foreign selling of approximately USD134 Mn which was mainly due to liquidation of a global hedge fund.
b. Regulatory action by the SECP to improve risk management and transparency of market participants
c. Over leveraged positions in the market, that have significantly reduced
IS THERE ANY CHANGE IN FUNDAMENTALS – IMPROVEMENT IN MACRO ECONOMIC INDICATORS
The above reasons for the correction in market are probably temporary in nature and none of these affect the fundamentals of the stocks that are being sold. However, if we look at the fundamental factors we witness that the macro fundamentals are actually improving.
a. During the previous one year, inflation has gone down from 8% to that below 5%, which has resulted in a decline in interest rates from 10% to 8%. This includes the recent cut of 0.5% (50 bps) announced by the State Bank just a few weeks back. Monthly inflation numbers for the month of March 2015 are expected to remain below 3%, which is the lowest level in the last 10 years.
b. Pakistan’s credit rating outlook improved from stable to positive
c. IMF has approved sixth installment of USD 520 Mn
d. FX reserves have increased by 13% since the start of current fiscal year, showing a modest growth. They currently stand at USD 16.28 Bn.
e. The currency is expected to remain stable on back of positive current account position witnessed last month.
f. The visit of Chinese Prime Minister is also expected next month, which is a positive development.
g. Improvement in the law and order situation
h. Corporate profitability is expected to remain intact with a growth of 16% with dividend yield of above 6% being expected
ADVICE TO INVESTORS
With recent correction of stock market, the PE multiples has improved from 8.75x to 7.50x which is very attractive. We are of the view that macroeconomic indicators are improving and suggest our investors who are targeting e.g. Rs. 100,000 investment in stock market to 1) take this exposure through Meezan Islamic Fund (MIF) or 2) should you wish to remain slightly cautious, you may invest through Meezan Balanced Fund (MBF), which on average keeps an exposure of 50% to the Stock Market.