The local equity bourse posted a 3% return (+1,181 points MoM) during Nov’20 to 41,069 points (USD-based return of 3.5% MoM). This took the 5MFY21 return of the market to 19.3% (USD-based return of 25.8%). Two key events revived global sentiments this month: Joe Biden’s Presidential win in the US, and major headway in development of a COVID-19 vaccine with Pfizer/BioNTech’s and Moderna announcing efficacy of 95% and Oxford/Astra following closely behind with some trials showing efficacy of 90%. This translated to the domestic bourse where lately, infection spike had pushed investors to the periphery with the second-wave theory gaining traction. Albeit, PM Khan has ruled out a nation-wide lockdown and vowed to aid industries during this difficult time, which triggered a rebound at the index.
We also highlight that the economy continues to barrel through this pandemic. The following have been positive economic developments of the outgoing month: Current Account Balance posted a surplus for a fourth consecutive month, influx of Remittances of over USD 2bn for a fifth consecutive month in Oct’20, LSM growth at a decent 4.81% during Jul-Sep’20, CPI at 8.9% in Oc’20 (lower then street consensus), and growing FX reserves (over USD 13bn). Moreover, Roshan Digital Account for overseas Pakistani’s has also been received well (PKR 16bn to date).
Outlook and Recommendation
We expect the market to continue its positive trend owed to possible roll out of vaccines in the US by 21st Dec’20 (Moderna has applied for urgent authorization of the same) followed by other countries. In addition, local fundamentals signal at a vigorous recovery in the economy with industrial sectors pushing the growth expectations, which should restore confidence in the market. We also expect foreign flows to turn positive soon with a miraculous upside expected in Emerging Markets (Pakistan included). That said, we cite exacerbation in the second wave of the coronavirus as a key downside risk for the market. The KSE-100 index is currently trading at a PER of 7.2x (2021) compared to Asia Pac regional average of 15.8x and offering an alluring DY of ~6.4% versus ~2.1% offered by the region. Our top picks are HBL, MCB, OGDC, HUBC, FFC, LUCK, ENGRO, NML, ILP, PSO, and AVN.