After five consecutive years of positive returns, the benchmark KSE-100 Index plunged by 15.35% (20% in USD terms) in CY17 to close at 40,471 points. This is the worst year for equities since 2008 market crash, after making high of 52,874 points.
Political uncertainty which kept growing during the year owing to ‘Panama leaks’ and the eventual disqualification of ex-PM, Nawaz Sharif, worrying economic indicators, widening current account deficit and possible depreciation of PKR against USD had played a dominant role in the market’s fall in 2017.
Foreign participation was expected to increase in 2017 on inclusion of Pakistan in the MSCI EM Index but it saw another round of foreign selling that has now stretched over 3 years. Among last three years, this year’s outflow is the highest as foreign investors pulled out USD 487 million worth of investments from PSX amid concerns over PKR devaluation.
Cement Sector topped the list of worst performers, followed by Power and Pharmaceuticals. Despite record volumetric sales, Cement sector declined the most owing to rise in international coal prices and drop in cements’ prices in some parts of the country. Power sector remained under pressure after the abrupt decision of government to cease FO based generation and lower multiyear tariff for K-Electric Limited. Underperformance of Pharma sector was attributable to concerns over margins on account of possible PKR depreciation.
Accordingly, the portfolio of your Company decreased by 21.56% during the year, against KSE-100 Index decline of 15.35%. The underperformance was primarily due to below market performance of HUBCO having a higher allocation of 37% in the total portfolio. Average exposure to equities during the year remained at 98%, whereas 2% was invested in mutual funds and Government Securities.