We hosted a webinar yesterday with our partners at Intermarket Securities (IMS) in Karachi. We summarised our macro outlook for Pakistan (see here for a deeper dive published yesterday morning that unpacks the macroeconomic impact of the recent floods and implications for Pakistan's eurobonds), while our counterparts at IMS Raza Jafri and Wajid Rizvi outlined their views on equities and top picks.
While the risk of a balance of payments and sovereign debt default has increased in the wake of the floods, we think that it is already priced in with Pakistan's eurobonds trading below our estimated recovery value.
If Pakistan is able to tread the increasingly narrow path out of the crisis then there could be significant upside, but this will require the mobilisation of fresh external funding to plug Pakistan's widening external financing gap and prevent the drawdown of Pakistan's unsustainability low FX reserves.
Likewise, IMS flags historically cheap equity valuations, with the current economic and political malaise already priced in.