May 19, 2022 (MLN): Triggered by uncertainty due to political noise, weak economic macros, and higher secondary market yields, mutual funds, the major player at the Pakistan Stock Exchange (PSX) continued to be a net seller as it has witnessed net equity outflows of Rs17.76 billion or $97.86 million from January to date.
The chief investment officer (CIO) of one of the leading mutual funds confided that economic and political challenges happen to be the most concerning factor, leading investors to redeem their mutual fund investments generally.
There is a fading risk appetite in the market given the significant uncertainty. Economic and political challenges, an increase in interest rate by the central bank, and a hefty increase in fixed income yields (cut-off yields of T-bills have crossed more than 14%) were the key drivers for this heavy selling by mutual funds.
Going forward, the market is likely to remain volatile until there is a certainty that the IMF program will resume; but this requires making difficult and unpopular macroeconomic decisions by the government. Further, what is next to watch is the upcoming monetary policy meeting under an acting SBP governor.
Replying to the question about investors’ transfer of funds from equity to fixed income funds due to high T-bills yields, he said that investing in fixed income space is looking more attractive to investors due to safe and attractive avenues.
“With a real opportunity of a no-lockup deal, fixed-income investments are considered to be less risky and we are currently offering more than 12% annualized returns.”
What makes it unique from bank fixed deposits is that investors take the comfort to hedge their risks by parking money in instruments that provide better returns with no holding period.
Adding that these investments are a smart bet as you can redeem them any time, not largely affected by political and economic downturns. While equity funds are prone to volatility.
When asked about how he sees the short-term equity market performance, he said that valuations are attractive at the lowest levels of multiples while the corporate earnings’ growth is intact.
It is a matter of confidence. As soon as the market picks up the momentum, the market forces will balance the negativity of a few investors, changing the whole scenario.
Responding to the query regarding worldwide mutual fund buying at a low level but in Pakistan, this is the reverse case most of the time, he said that the market has been trading in the band of 42k 46k for the last 15 months and we have been buying, however, it depends on liquidity.
“The latest nine-month financial results showed the robust earnings growth of most of the companies, announcing lucrative dividends by EFERT, EPCL, Engro, MEBL, etc.”
Investors are waiting for the fresh triggers which will drive the market going forward, he added.
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