By: JS Global Capital Limited
Pakistan Economy: C/A surplus of US$275mn in April 2015: April 2015 Current Account (C/A) posted a surplus of US$275mn vis-à-vis revised March 2015 deficit of US$20mn, led by 26% MoM or US$328mn improvement in balance on trade in goods. Import of goods in April 2015 fell by 10% MoM or US$320mn, while exports of goods clocked in similar to last month (+0.4% MoM or US$8mn). Secondary Income also contributed towards improvement in C/A on the back of 11% MoM or US$190mn higher Current Transfers (including 4% MoM higher Remittances). Overall 10MFY15 C/A deficit clocked in at US$1.36bn against 10MFY14 deficit of US$2.93bn, where improving imbalance is owing to (1) higher CSF receipts and (2) 16% YoY higher remittances. We expect C/A deficit in FY15E to clock in at US$1.7bn (-0.6% of GDP) vs. a deficit of US$3.1bn (-1.3% of GDP) in FY14.
HBL privatization proceeds boost BOP in April 2015: April 2015 Balance of Payment (BOP) turned in a surplus of US$905mn vis-à-vis March 2015 deficit of US$83mn on the back of (1) US$677mn higher Financial Account surplus where over US$600mn proceeds were received on account of HBL’s privatization and (2) US$295mn higher C/A balance. As a result, 10MFY15 BOP account posted a surplus of US$2.12bn compared to 10MFY14 surplus of US$1.95bn, where US$1.57bn improvement in C/A provided noteworthy sustenance.
Macro improvements to drive market’s rerating: Our re-rating theme for Pakistan equity markets remains intact (over 45% discount to regional peers), backed by improving macroeconomic stability and strong corporate profitability. However, (1) potential gas tariff hike and (2) upcoming federal budget is likely to keep near-term performance in check. Our top picks remain UBL, POL, EFERT, KEL and LUCK.