AKD Securities Limited Equity Research – Daily Report

Karachi, November 14, 2018 (PPI-OT): MSCI: Market gives a not-so-subtle salute!

Blimey! The MSCI has retained Pakistan’s status as an Emerging Market – locals had hoped against hope for a downgrade. That said, UBL and LUCK have been downgraded to small caps from previous EM Standard while MLCF and HCAR have unexpectedly been deleted from the Small Cap Index.

Pakistan’s weight is estimated to have fallen to 0.04% versus previous 0.07%. Whether the insignificant weight in EM leads to consultations for a downgrade remains to be seen.

With the next leg in market performance likely to be dictated by locals, we believe eyeing events such as funding packages from the Chinese and Saudia as well as negotiations with the IMF take precedence over MSCI changes – a view corroborated by today’s performance with the market giving a not so subtle salute.

Current valuations have already priced in MSCI changes in our view, with UBL and LUCK having already shed 15.8% and 17.3%, respectively over the past 3M. Moving ahead, we believe addressing of Pakistan’s external imbalances remains the key to unlocking performance.

Top picks include Banks (HBL, UBL, BAFL) and Textiles (NML, GATM) while we also like LUCK, HUBC and ASTL.

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