Foundation Research

Equities
Pakistan Strategy

PAKISTAN
30 June 2015

Grisis may put off monetary

tightening
Event
The negotiation breakdown for 2nd bailout package between Greece and
its creditors has surprised the investors across the globe with MSCI Emerging
(EM) and Frontier Market (FM) Index closing down 2.2% and 0.1%,
respectively. Major drag came from the banking sector which was 3.0% as
per the MSCI. Our view is centered around the European authorities resorting
to quick fixes to roll over Greek liabilities and putting off adverse implications
(Greece exiting EU).

Greece repayment due by Dec-15

Creditor

Due date Am ount- m n Rate-%

IM F
June 30
Tbill holders
July 10
IM F
July 13
Tbill holders
July 17
ECB
July 20
EIB
July 20
Tbill holders
A ug 7-14
ECB
A ug 20
IM F
Sep 4
Tbill holders
Sep 4
Tbill holders
Sep 11
IM F
Sep 14
IM F
Sep 16
Tbill holders
Sep 18
IM F
Sep 21
Tbill holders
Oct 9
IM F
Oct 13
Tbill holders
No v 6
IM F
Dec 7
Tbill holders
Dec 11
IM F
Dec 16-21
Source: WSJ, Fo undatio n Research, June 2015

1,552.3
2,000.0
454.3
1,000.0
3,456.4
25.0
2,400.0
3,020.3
302.9
1,400.0
1,600.0
340.7
567.9
1,600.0
340.7
1,400.0
454.3
1,400.0
302.9
2,000.0
908.6

2.3
2.7
3.7
3.7
2.75-2.70
6.1
3.0
2.7
2.7
3.0
3.0
3.0
-

Impact
What is happening in Greece? Negotiations between Greece and its
creditors broke down after the Greek government announced that it would
hold a referendum on 05th July 2015. The breakdown of negotiations means
Greece is unlikely to receive the final 7.2bn in bailout funding in time to meet
the 30th June payment of 1.5bn to IMF. However, this is just the beginning
as the funding is key for the country to meet 19bn of repayments due
between now and CY15-end (key deadline is 20th July to repay 3.5bn to
ECB).

Furthermore, Greece needs a third assistance package. The European

Commission (EC) had an offer of an additional 35bn 7-year package on the
table earlier in June. However, resolution of the final tranche is needed first.

Impact on Pakistan: Direct economic linkage between Pakistan and

Greece is limited. The impact on Pakistan may likely come via confidence on
its Eurobond yields and currency. In an event that Greece is unable to reach
an agreement with the EC and IMF, the scenario of a Greek exit would further
weaken the Euro (in base case we see the situation to get resolved with
European authorities partly giving in to Greek demand). This could caused
the US FED to delay its rate hike and hence, could also put off change of
stance from other central banks (SBP included) to combat the impact of
lowering demand. Exports to Europe constitute 30% of Pakistan total export
of US$25bn.

Under the base case where Greece reaches an agreement, Pakistan bond
market may continue to hold true to its initial view of rate hike in 2HFY16 that
has been formed as a consequence of last PIB auction.

Impact on the equity market: Global equity market has been underpressure with MSCI EM and FM closing 2.2% and 0.1% lower yesterday.
However, we see minimal to no impact on Pakistan equities as distinct factors
(+ve impact of lower oil prices, forward stride in economic reforms, CPEC,
improved credit rating and possible reclassification to MSCI EM) are causing
the local bourse to experience a rerating phenomena. We see these factors
to remain largely intact and thus, expect continuation of flows in 2HCY15.

Analyst
Nauman Khan
92 21 5612290- 94

nauman.khan@fs.c om.pk
Ext 338

Outlook
We reiterate that Pakistan equity market to move beyond at least 38,000pts
by December 2015 as market multiples adjust to historic low policy rate of

Disclaimer: This report has been prepared by FSL. The information and opinions contained herein have been compiled or arrived at based upon information obtained from sources believed to be reliable and in good faith. Such
information has not been independently verified and no guaranty, representation or warranty, express or implied is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change
without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be
construed as, an offer, or solicitation of an offer, to buy or sell any securities or other financial instruments. FSL may, to the extent permissible by applicable law or regulation, use the above material, conclusions, research or
analysis before such material is disseminated to its customers. Not all customers will receive the m aterial at the same time. FSL, their respective directors, officers, representatives, employees, related persons may have a long or
short position in any of the securities or other financial instruments mentioned or issuers described herein at any time and may make a purchase and/or sale, or offer to make a purchase and/or sale of any such securities or other
financial instruments from time to time in the open market or otherwise, either as principal or agent. FSL may make markets in securities or other financial instruments described in this publication, in securities of issuers described
herein or in securities underlying or related to such securities. FSL may have recently underwritten the securities of an issuer mentioned herein. This document may not be reproduced, distributed or published for any purposes.

Pakistan Strategy

June 30, 2015

6.5%. We remain OW on infrastructure related sectors (cement and other construction materials) and OMCs. For
Autos, we are closely tracking progress on the reflection of better economic situation on underlying demand which
may cause us to upgrade our stance on the sector. For Banks, we prefer top tier banks over mid tier, while advice
selective picking in E&Ps and Fertilizers.

Foundation Securities (Pvt) Limited