Foreign outflow on the back of Pakistan’s entry into emerging market space, and political turmoil following the dismissal of Nawaz Sharif as the prime minister of Pakistan were some of the chief determinants pulling the local bourse southwards. As a result, the market slid around 15 percent during the year, and the benchmark shed 23 percent value since its peak on May 24, spiraling to an almost 16 month low. The year 2018 may yield lucrative returns, making the current market correction a good point of entry. 2017 was year of highs and lows for Pakistan in the stock market.
Market overview
According to Chief Executive Officer (CEO) of Al Meezan Investment Management Limited, the year 2018 may yield lucrative returns, making the current market correction a good point of entry. Pakistan’s market closed the year 2017 at a forward price per earnings ratio (P/E) of around 7.5 percent, which is lower than the historic 10 year average. Moreover, the market’s discount to MSCI Emerging Markets Asia has widened to about 50 percent, as compared to the last 10 year average of 25 percent. As such, the market presents an appealing entry point going into 2018.
The much awaited devaluation of the Pakistani rupee has also finally materialized which should address structural issue of ballooning current account deficit and draw the interest of foreign investors.
Positive developments have followed the delimitation bill passed by the parliament, potentially paving way for elections to be held this year as per schedule. On the economic front, the successful issuance of a euro bond and a Sukuk in the international market cumulatively raised US$2.5 billion. This has provided a cushion to the deteriorating current account position, indicating that Pakistan is being considered as a strong investment case by international investors. The sovereign debt issues of the country are still oversubscribed, highlighting the confidence of investors.
Ongoing development projects worth over US$60 billion under the umbrella of CPEC are well on track, and materialisation of these energy and infrastructure projects will stimulate economic activity in the country.
The election year may bring some turbulence and hiccups, but expected political stability post-elections should lead to a positive trend in the market. Historical trends also support the notion that while political turbulence may affect market valuation, the potential to bounce back has always been present.
Al Meezan Sharia Complaint Equity Funds
Al Meezan encourages investors to remain confident about long term investment in its Shariah-complaint Equity Funds. A small case analysis shows that investors have significantly gained over the long term so it is not advisable to exit the market every time there are hiccups.
Take this scenario for example. If an investor invested Rs50,000 every month since the inception of Meezan Islamic Fund (MIF), he/she earned over Rs27 million in profits. Investors who do not panic by keeping long term returns in mind inevitably benefit from power of compounding.
In addition it is very difficult to time the market for even the best of minds. “Not all our investors are willing to invest in the equity market, because not every investor wants to enter volatile conditions,” says CEO Meezan. For safe investment, we recommend Al Meezan’s Capital Preservation Plans, where the investors are protected against all sorts of losses.”
Money that is invested in preservation products is returned with profits over and above initial investments. These funds provide investors downside protection, as well as upside potential from the equity market.
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“We have launched four preservation plans in the past, and have recently launched a fifth preservation plan – Meezan Capital Preservation Plan III (MCPP-III) – after a span of three years. Investors looking to stay secure against dips in the market can invest in MCPP-III before the January 31, 2018.”
Al Meezan Investments is the largest manager for Mutual Funds in Pakistan, with an AM1 rating, the highest management quality rating (JCR-VIS) in Pakistan. With over 22 years of successful track record in managing investments, Al Meezan is the pioneer in introducing Shariah compliant investments in Pakistan, with a vision to make ‘Shariah compliant is investing a first choice for investors’.
Several of their investments products offer a tax rebate to investors.
All investments in mutual fund are subject to market risks. Past performance is not necessarily indicative of the future results.
Mutual Fund industry review
The financial year 2015-16 remained challenging for the Mutual Funds industry. The assets under management slightly increased from Rs443 billion on June 30, 2015 to Rs490 billion as on June 30, 2016. During the year, 34 new open-end funds were launched up to June 30, 2016.
Equity funds (both conventional and Shariah-compliant) dominated the AUMs of the industry with the largest share i.e. 39.35 percent. Income funds (both conventional and Shariah-compliant) held the second largest market share i.e. 28.21 percent, followed by Money Market funds (both conventional and Shariah-compliant) with market share of 12.28 percent.
The Securities and Exchange Commission of Pakistan (SECP) notified the amendments in the Non Banking Finance Companies & Notified Entities Regulations on November 21, 2015. In light of strong determination of the SECP to promote ‘ease of doing business’ in all the areas under its ambit, SECP also amended the Non Banking Finance Companies (Establishment & Regulation) Rules, 2003 allowing asset management companies to obtain licenses to manage Real Estate Investment Trusts (REITS) and Private Equity Funds.
Mutual Funds Association of Pakistan (MUFAP) has been proactively involved in bringing transparency and good governance in the industry and we hope to continue this process with great vigour.
This year has been very challenging for the mutual funds industry with continued changes in the tax laws adversely affecting institutional investment in mutual funds. Declining interest rates and mostly bearish market conditions during the year under review further hindered growth of the mutual fund industry.
The mutual funds industry closed the financial year at Rs490.37 billion up 10.57 percent over last year. The Equity Funds category (both conventional and Shariah-compliant) constituted of Rs178.17 billion up 12.17 percent from last year followed by income fund category at Rs127.73 billion up 25.83 percent and Money Market category at Rs55.58 billion, which was down 30.67 percent from the previous year.
The Shariah-compliant funds category continued growing faster than the conventional category and closed the year at Rs157.49 billion, recording the growth of 26.78 percent over the previous year.
A variety of mutual funds are being offered in this category to suit the varied needs of investors by asset management companies.