UBL Fund Man­agers of­fers fi­nan­cial mar­ket recipe

The Pak Banker - - COMPANIES/BOSS - Ali Alvi

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.

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