Report
Ali Asghar Poonawala
EUR 9.06 For Business Accounts Only

Pakistan Strategy: Yields signal a road less travelled for markets, (AKD Daily, Aug 23, 2019)

  • Following the results of the latest PIB auction (cut-off yields for 5yr/10yr bonds falling 25/40bps to 13.55/13.15%), we draw conclusions for monetary policy based on the inverted yield curve (yield spread between 3yr & 10yr widened to 110bps vs. 70bps in the July) significantly weakening the case for further tightening
  • Making the case for an inversion being positive for domestic equities, we highlight major characteristics of Pakistan’s financial markets (thinly traded debt market limits predictive power of yields) that negate many of the widely held international trends based on this phenomenon (harbinger of recession), while flagging inflation reads for the months of 3QCY19 (and any additional revenue measures adopted along the way) to crystalize our rate cut forecast
  • For Banks, longer tenor bonds, despite relatively stuffed spreads still offers appeal to Banks given, flat private sector offtakes, fresh lending yield of 50bps, and risk-free return on these investments where credit risks could surge in the ongoing macro environment (CY19/20F cost of provisioning: 0.7/0.8%).
  • Contrasting macro, debt market (10yr PIB vs. DR spread) and equity market (forward P/E) metrics to ascertain the interactions between these variables, we highlight the largely inverse movements arising from yield inversion (long term maturity yields exceeding short term DR).
  • While an overlay of consumption growth highlights a slow recovery scenario, based on splitting period returns and dissecting monthly market performance over the period of recovering spreads in the past, higher monthly gains, lends weight to additional period gains for market participants to leverage returns, on the bumpy road to macro recovery (influenced by policy, geopolitics). We adhere to our bias for hedged-income E&Ps (OGDC and PPL) followed by conviction calls on HBL, MCB and UBL accompanied by the growth tilt on offer in LUCK, HUBC and ENGRO.
Underlying
Hub Power Co. Ltd.

Hub Power Company is a holding company. Through its subsidiaries, Co. is engaged as a power producer in Pakistan that focuses on developing, owning, operating and maintaining power stations. Co. supplies electricity to Water and Power Development Authority and National Transmission and Despatch Company under long term Power Purchase Agreements for its Hub and Narowal plants respectively.

Provider
AKD Securities Limited
AKD Securities Limited

AKD Securities Ltd. is one of the leading securities firm in Pakistan, providing a comprehensive range of investor focused services, including equity brokerage, economic and securities research, investment banking and financial advisory services. AKD Securities accounts for more than 6% of the average daily value of the Karachi Stock Exchange. AKD Securities was the first brokerage house to launch an online trading platform in Pakistan in November 2002 and now has the largest market share with over 6000 customers. This has helped diversify and expand the retail investor base in the country and ushered in a whole new universe of investors to the stock market.

AKD Securities Ltd. caters to a diversified group of domestic and international institutional investors, high net worth individuals and upscale retail clients, including expatriate Pakistanis. With high quality research, unparalleled execution and distribution capability for both regular and large block trades, AKD Securities Ltd. has earned an outstanding reputation in the Pakistani securities industry.Outside of commercial banks, AKD Securities Ltd. is one of the biggest capital market firms in the country. AKD Securities is the leader in raising and providing risk capital in underwriting, market making and mergers and acquisitions in Pakistan. Good corporate governance and professionalism are emphasized throughout the firm and AKD Securities Ltd. is amongst the very few companies to have introduced a firm-wide comprehensive CODE of ETHICS, overseen by an independent compliance manager.Ultimately, our success is based on the quality of service we provide to our customers and the trust and confidence reposed in us by them. Our focus, therefore, remains on customer satisfaction at all levels in the company.

Analysts
Ali Asghar Poonawala

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