UBL Fund Managers offers financial market recipe
INTERNATIONAL commodity prices remained subdued on concerns over global economy, led by weakening Chinese economy. Equity markets also declined on the back of worries over European banking system's ability to withstand a global slowdown. Oil Prices are trading close to multiyear low on the expectation that global energy markets will remain vastly oversupplied in the near future. Lower Oil Prices will be a boon for Pakistan's economy as it will translate into lower import bill and subdued inflation.
Stock market has been volatile during the last couple of weeks alongside other emerging / frontier markets. The US FED rate hike after almost a decade has led to shifting of funds from emerging/frontier markets to safe heaven fixed income markets.
Foreign portfolio outflows (CY2016 outflow USD 69 mn) and declining regional markets continue to dampen sentiment. Thus the equity market is likely to stay range-bound in the near-term. However the corporate fundamentals are very attractive and drive our positive view on equities over the medium /longterm, with a preference for cement, power, steel and pharma sectors.
Pakistan Investment Bonds (PIBs) yield have fallen considerably during the last fortnight as Banks remain aggressive buyers of longer tenor bonds to replace their maturing PIBs. Even though prudence suggests a status- quo stance in the upcoming Monetary Policy Statement, another cut in discount rate cannot be ruled out.
Despite short-term volatility, we have a positive outlook on the local equity market in medium-term. The low interest rates, higher GDP growth and strong corporate earnings growth is expected to fuel the equity market over the long-term.
The fundamentals of the stock market are intact and KSE 100 is trading at a significant discount as compared to the regional peers. Thus any corrections in the stock market should be viewed by long-term investors as opportunities to build stock market exposure. Low yields on fixed income securities and the positive outlook of the country's economy make it all the more important for investors to allocate a portion of their portfolios to equity.
UBL Fund Managers offers the opportunity to invest in stocks through a variety of products including UBL Stock Advantage Fund, UBL Asset Allocation Fund and the Equity Sub-fund of UBL Retirement Savings Fund. Investment in equity funds should be based on the investor's risk tolerance and time horizon.
We also recommend that investors with relatively low risk tolerance should maintain exposure to Government Security funds which hold long-term government bonds. Longerterm bonds still offer attractive spreads above short-term T-bill yields and money market instruments. We reiterate that, before making any particular investment decision, you should discuss your specific investment needs with your investment advisor.