THE MARKET

The number of viewers of the ruling on Panama Leaks the Supreme Court of Pakistan would have easily surpassed the population of Panama (4m) in itself, if not more. Such is the integration of the capital markets in today’s digital world where a new (profitable) trading strategy has emerged of following Donald Trump’s tweets. In Pakistan, also, political temperature continues to remain high.

The Supreme Court ruling remained a split 3-2 in favour of forming a Joint Investigation Team (JIT) including notables from State Bank of Pakistan (SBP), Federal Investigation Agency (FIA), National Accountability Bureau (NAB), Security Exchange Commission of Pakistan (SECP) and interestingly, a nominee from Military Intelligence (MI) and Inter-Services- Intelligence (ISI) each to induce neutrality in the investigation. Two of the judges believed enough evidence existed to disqualify the Prime Minister while a majority – three – judges advocated formation of JIT to collect further evidence before passing the judgment. The JIT has been allotted 60 days to submit their final conclusion and present to the court on fortnightly basis their findings. This has bought the ruling government time to chalk-out further strategy and the equity markets two months of deferred ambiguity.

Politics, on the external front, did not seem to be simmering down either. On one hand, India accused Pakistan of mutilating bodies of two Indian soldiers – a charge Pakistan has denied – and warned of striking back at the time and place of their convenience. Interestingly, at the Western border, Afghanistan started border shelling which Pakistan claimed to have responded by killing 50 soldiers of the Afghan Army. Another neighbour, the Iranian Foreign Minister, also visited Pakistan in the same month to discuss issues pertaining to killing of nine Iranian soldiers. The timing of regional political skirmishes is crucial especially when the report on “Dawn Leaks” was immediately rejected and deemed incomplete by the Army; the tweet was heavily criticized by the Interior Minister of Pakistan. Sincere efforts are now required to win over the trust in the Indo-Af-Pak-Iran region, peacefully. So consuming is the politicing these days that the Finance Minister of Pakistan has had to engage with US National Security Advisor Mr McMaster to discuss pressing issues.

Falling oil prices – more importantly, its sustainability – is great news for oil importing Pakistan. Long emphasized by Tundra, the World Bank has started to study the size of Pakistan’s GDP as the Finance Minister believes it is understated by at least 20%. The move is likely to improve previously alarming, Debt to GDP, Current Account Deficit, Fiscal Deficit and other ratios and might even enable Pakistan to pose higher GDP growth rate post-rebasing of the constituents of it.

The month of May 2017 is probably the single most economic event for the government as it unveils its last budget of the current tenure. We expect continued development-oriented allocations with certain populist schemes to lure the voters before the general elections scheduled early 2018. A leveraged product for the Pakistan Stock Exchange is expected to be launched within a month and rescinding of the bonus tax in the current budget would give the market the much required adrenaline shot that the investors are hoping for in the post MSCI Emerging Market status world for Pakistan.

THE FUND

During the month, the Fund went up 2% outperforming MSCI Pakistan Net (SEK), +0.6%. The sectors leading the pack of outperformance were Industrials, Utilities and Information Technology. The Panama case seemed to have temporarily

panned out. The market responded with a sigh of relief and settled higher to bring some life back to the market.

Our hypothesis on falling drilling costs for Shale “Frackers” prompted us to further reduce the bets – despite reasonable valuations – solely because as Alpha-betters, we have found more value elsewhere and bought in more chips of Automobile, Oil Marketing, Power and Pharmaceutical sectors. The re-pivoting of the portfolio is to keep exposing our assets to companies which are poised for higher profitability rates in the buoyancy of the economic growth run.