Askari Investment Management

Financial Advisors and Fund Managers of Choice

November 2008

Fund Manager Report

Head Office
501, 5th Floor, Green Trust Tower, Jinnah Avenue, Blue Area, Islamabad
+92 51 111 246 111, +92 51 281 3017
Regional Office Karachi
Mezzanine Floor, Bahria Complex III, M. T. Khan Road, Karachi.
+92 21 5635312-4, +92 21 563 5315
Regional Office Lahore
C/o Askari Bank Limited, Plot No. 53, Block CCA, Phase II C, DHA, Lahore Cant
+92 42 574 6421-22, +92 42 574 6423
www.askariinvestments.com

ECONOMIC UPDATE

Fund Manager Report

November 2008

Pakistans economy showed some signs of stabilization after approval of a standby loan arrangement from the International Monetary
Fund (IMF). Commodity prices continued to fall including crude oil, petroleum products, cereals, cooking oil, steel, coal, and fertilizer, etc.
CPI for the four months of FY09 was around 25%. On a positive note, Wholesale Price Index decreased by 1.87% during the month of
November due to declining oil prices. Current account deficit for the four months of FY09 increased by US$5.9 billion against US$2.9
billion during the same period last year. Share of oil in the total import bill has increased to 38% from 30% last year. Foreign remittances
during the first four months of FY09 rose 12.71% over the corresponding period last year. After getting US$3.1 billion from the IMF,
Pakistans foreign exchange reserves are expected to increase above US$9.0 billion. Pak rupee gained versus US dollar by 6.13% to Rs.
78.85/US$ during the month. Government of Pakistan officially lowered its GDP growth forecast from 5.5% to 4.3% for FY09. The
Standard & Poors rating agency lowered Pakistans long-term foreign currency loan credit rating to CCC on November 14. Under the IMF
standby loan agreement, Pakistan plans to reduce its budget deficit to 4.2% of GDP, compared to 7.4% last year. Pakistan hopes to raise
US$4.0 billion through Friends of Pakistan to meet the current account deficit. On the international scene, stock markets saw further
downside as MSCIs All Countries World Index lost 6.8% during the month. Emerging stock markets lost 7.4%. Monetary easing continued
as interest rates were cut further and additional stimulus packages were announced. Chinese and East Asian economies are expected to
grow better than what was anticipated in October, as governments plan to spend huge amounts on infrastructure development. China is
expected to grow 10% compared to 11.9% last year. Unemployment is expected to rise in the developed world, deflation is likely, the US
and Euro zone economies are expected to shrink 0.9%, and 0.6% in 2009 while Japanese economy may grow 0.3%.
Fixed Income Market
Withdrawl trend in the foreign portfolio investment
from Pakistan saw a net US$26.4 million outflowing
from Pakistan during the month. The total net
investment withdrawal from Pakistan during FY09
now stands at US$278.4 million. As talks on the
IMF loan progressed, flight of domestic holdings of
foreign currency seemed to slow down, as Pak
Rupee started improving against major currencies.
As part of the agreement with the IMF, the State
Bank increased the Discount Rate by 2%, to 15%;
in case of further erosion of the foreign exchange,
the Discount Rate may be raised further. Credit
default swap rate on Pakistans eurodollar debt went up as high as 50%. During the month, 1-Month KIBOR increased initially as foreign
exchange situation worsened and eased to the initial level after the IMF loan was negotiated successfully. However, rates at higher tenors
moved up and stayed at higher level, implying that interest rates may remain high over a longer period. The SBP held two auctions this
month to sell T-bills. On November 05, the cut-off yield on 3-month T-bill rose to 13.53% in an auction by the State Bank selling Rs. 51.54
billion of the paper. In another auction conducted on November 19, the cut-off yield on 6-month T-bill rose from 12.66% to 14.01%. The
cut-off yield on 3-month T-bill rose to 13.85% from 13.53% on November 5. The Bank sold Rs 101.6 billion of the 3-Month T-bills and Rs
1.87 billion of the 6-Month T-bill. All bids for the 12-Month T-bills were rejected.
Equity Market
The KSE 100 Index changed only by 0.05% during
the month as the price floor set by the KSE Board
on August 27 could not be lifted during the month.
During the same period, MSCI EM Asia Index was
down 10.7%. Since August 27, EM Asia Index was
down 41.8%. Continued fall in international stock
markets and tight liquidity situation in the country
forced the KSE Board to keep the floor intact.
Again, in spite of the floor, foreign investors took
out US$26.4 million from the stock market,
perhaps through off-market transactions. The KSE
volume was even lower than the last months historically lowest levels. Market capitalization remained unchanged. Market participants
had been anticipating a bailout package from the Government of Pakistan in the aftermath of successful IMF loan negotiations. Instead,
the IMF has shown reservations on providing bailout to the stock market participants by an already cash starved Government. Negations
are still going on between the KSE Board, the SECP, the Ministry of Finance, and the IMF to agree the terms and conditions for the floor
removal. Some support from the Government is still likely. Although brokerage research is still more optimistic, our own estimates show
that corporate earnings in FY09 may decline by as much as 35%. Banking sector profits may decline about 30% as foreigners continue to
withdraw funds. The Fertilizer and oil exploration and production companies may still show earnings growth. However, the autos, cement,
insurance, oil refiners, and oil and gas marketing sectors may show fall in profits. Lower crude prices are likely to affect margins of refiners
and oil marketing companies. As the global economic crisis worsens, and the law and order situation in the country remains uncertain,
prospects of the stock market revival remain limited.

NAV 93.90
Fund Manager Report
November 2008

ASKARI INCOME FUND

General Information
Minimum Investment
Sales Load
Management Fee
Benchmark
Risk
Managnt Company Rating
Performance Rating

Investment Objective

Rs 5,000
None
1.5%
3-month KIBOR
Low
AM3 by PACRA
5-Star by PACRA

Fund Size and Growth

Nov 29 08
Rs 4.1 billion
93.90

Fund Size
NAV*

Oct 31 08
Rs 5.0 billion
102.34

* Dividend of Rs.2.37 paid as of September 30, 2008

Fund Performance
Return
1-Month
AIF**
-8.2%
Benchmark**
1.3%
** Actual Cumulative Return

Sharpe Ratio***
Duration (months)
Expense Ratio

3-Month
-6.3%
3.7%

6-Month
-3.8%
7.1%

Since IPO

19.5%
32.3%

(0.4)
2.6
1.78%

***Risk-free Rate is 3-Month Treasury Bill Rate

Economic Data
KSE100 Index
6M KIBOR
CPI Inflation

Sep/07
13,351.8
9.97%
8.37%

Dec/07
14,075.8
10.00%
8.79%

Mar/08
15,125.3
10.32%
14.12%

Jun/08
12,289.0
14.19%
21.53%

Nov/08
9,187.1
15.67%
-

The objective of the Fund is to provide investors a broad

range of asset classes so as to diversify fund risk and to
optimize potential returns. The fund invests in a variety of
fixed-income instruments including spread transactions, a
range of debt instruments, short maturity securities and
certificates of investment with the view of seeking high
yields while balancing risk. This offers the investors the
liquidity and the facility to invest in or redeem from the
fund at their convenience.
Fund Performance
November was a very difficult month for all income
funds in terms of performance as nearly all of these
funds had to write down their TFC portfolio in light of
SECPs Circular 26. As per the Circular, income funds
were directed to revalue the TFC portfolio downwards
by 5%-30% based on the rating of the TFCs. As a
result, income funds experienced steep declines in
NAV, which ranged from 2% to 25%.
AIF also revalued its TFCs downwards, which resulted in
a 13% decline in the TFCs portfolio. As a result, the
funds NAV declined by nearly 8% during November.
With the decline in prices, the TFC portfolio is yielding
close to 20%, which in turn has pushed upwards the
current yield of the fund to around 15%. We also feel that
the price decline in TFCs may be short-lived and the
prices should recover partially once the liquidity situation
improves.
SBP during the month of November, increased the
discount rate from 13% to 15%. This resulted in the 6month KIBOR increasing to the 15.67% mark by the end
of the month. During the month, IMFapproved a $7.6
billion Stand By Loan for Pakistan and the first tranche of
$3 billion was received towards the end of the month.
With more inflows expected from different donor agencies
in the coming months, we expect the liquidity situation to
ease somewhat. This said, KIBOR will remain in the
16%-17% range as a further discount rate hike is
expected in the coming months.
Portfolio composition remained essentially the same
during the month. We continue to avoid exposure to CFS
as we feel that currently the risk on this instrument far
outweighs the reward even though CFS is yielding more
than 40% these days. We believe that there will be a lot
of pressure on CFS financees when the equity market
opens, which may put CFS transactions under some sort
of settlement risk.

Fund Manager
Fund Type
Launch Date
Registrar

Adnan Muzaffar
Open-end Income Fund
March 15-16, 2006 (IPO)
Technology Trade Pakistan Ltd.

Listing
Trustee
Auditors

Lahore Stock Exchange

Central Depository Company
Ford Rhodes Sidat Hyder & Co.

ASKARI ASSET ALLOCATION FUND

General Information
Minimum Investment
Sales Load
Management Fee
Risk
Managnt Company Rating

Rs 5,000
2.5% front-end, 0.0% back-end
3.0%
Medium
AM3 by JCR-VIS and PACRA

Fund Size and Growth

Fund Size
NAV*

* Dividend of Rs. 1.99 paid as of June 30, 2007

Fund Performance
Rolling Return
1-Month
AAAF
0.00%
KSE 100
0.05%
Portfolio Details
P/E (FY09)
Beta
R2
Max Drawdown (DD)
Number of days in DD
Standard Deviation*
* On monthly basis

Economic Data
KSE100 Index
6M KIBOR
CPI Inflation

Dec/07
14,075.8
10.00%
8.79%

Oct 31 08
Rs 336 mn
61.6323

3-Month
0.00%
-0.23%

Nov 30 08
Rs 323 mn
61.6323

Since Inc.
-38.66%
-28.96%

FY09

-32.43%
-25.24%

Jun/08
12,289.0
14.19%
21.53%

Oct/08
9,182.9
14.52%
23.91%

Nov/08
9,187.1
15.67%

Top Ten Holdings of the AAAF

Arif Habib Securities Ltd.
Pakistan Oil Field Limited
Adamjee Ins. Co. Ltd.
Sui North Gas Co. Ltd.
JS Investments Ltd.
Lucky Cement
Arif Habib Securities
Engro Chemical

Investment Objective
The fund seeks to maximize long-term total return
(stocks plus income) while incurring lesser risk than a
fund comprising entirely of stocks. The asset universe of
the fund includes stocks, term finance certificates,
Government bonds, treasury bills, certificates of
Sep 30 08
Aug 31 08
June 30 08
30 Apr 08
investment,
system,
and spread
Rs 335 mn continuous
Rs 344funding
mn
Rs 498 mn
Rs 539 mn
transactions
fund seeks to 96.4405
61.6323 (Redi-Future),
61.4770 etc. The 87.8845
provide its investors with returns that are 5% higher than
the benchmark (KSE-100 index).
The Fund was launched (Pre-IPO) on June 2, 2007 and
the IPO took place between Sep 10 and September 13,
2007.
Fund Performance

6.95
0.90
86.29%
39.85%
444
7.15%

Mar/08
15,125.3
10.32%
14.12%

NAV 61.6323
Fund Manager Report
November 2008

Fauji Fertilizer Bin Qasim

Engro Chemical
Lucky Cement
Oil & Gas Dev. Co.
Packages Ltd.
Sui Northern Gas Pipelines
Pakistan State Oil
Pakistan Petroleum

The KSE 100 index changed a meager 0.04% during

the month as the prices frozen by KSE Board on
August 27 remained in force. The hope of a market
stabilization fund eluded as IMF imposed a condition
of No bail out fund for bourses while approving US$
7.6 billion financial package. At the end of the month
the Fund was invested 58% in equities and 42% in
TFC and equivalent.
The corporate earning of the listed companies is likely
to erode in coming year. It would be worst after a gap
of 9 years. Except for the Fertilizer and IPPs
projections of all other sectors will be adjusted
downwards. Banking earnings are going to decline
around 15% in 2009 mainly due to lower than
expected increase in deposits, deteriorating
conditions in capital markets and rising NPLs.
With the Government of Pakistans announcement of the
US$7.6bn financial bailout from the IMF, sovereign default
concerns have more or less fizzled out. With the first
tranche of around $3bn already received, the foreign
reserve position will improve in the short-term. This will
also help Government of Pakistan to honor its US$3.0bn
debt servicing commitments. The question however,
stands whether this funding will be sufficient to finance the
inherent weakness in Pakistans trade account, now that
capital inflows are drying amidst dire global financial
conditions.
.

Fund Manager
Fund Type
Launch Date
Registrar

Usman Ashraf
Open-end Asset Allocation Fund
10 September 2007 (IPO)
Technology Trade Pakistan Ltd.

Listing
Trustee
Auditors

Lahore Stock Exchange

Central Depository Company
Ford Rhodes Sidat Hyder & Co.