COVID-19: A CHALLENGE FOR

GLOBAL ECONOMY & PAKISTAN

25th March, 2020
Dear Investor,

As you are aware that the global pandemic COVID-19 popularly known as coronavirus is now spreading in Pakistan, we pray for
your health and hope you are taking appropriate precautions to safeguard yourself and your loved ones. Although the preparation
of a vaccine may take at least 12 to 18 months, cure from existing medicines is likely to be found much earlier. Success in
containing the virus comes at the price of slowing economic activity, no matter whether social distancing and reduced mobility
are voluntary or enforced.

The global count for coronavirus cases has so far reached around 450,000 in at least 190 countries and territories while over
19,000 people have died from the virus which originated from China in December 2019. In a densely populated country like
Pakistan with inadequate medical facilities, the virus can affect thousands of people in coming weeks.

Impact on Global Economy Table of “two Chinas”

The impact of the coronavirus is having a profound and Strict containment measures in Hubei helped limit
serious impact on the global economy and has sent the vius’s spread in the rest of Mainland China.
(New infections in Mainland China, per day, logarithmic scale)
policymakers looking for ways to respond. After suffering
initially, China has successfully controlled it which shows that 100,000
the right policies can make a difference in fighting the Hubei
10,000
disease and mitigating its impact. “The impact of the Rest of Mainland China
coronavirus pandemic will be quite severe, but a long 1,000
expansionary period and high employment rates mean the
global economy should weather the current shock”, said a 100

top IMF official who heads the IMF's Strategy Policy and
10
Review Department. IMF was working to address the crisis
through zero and low-interest rate loans and grants, and was 1
ready to help emerging markets deal with sharp capital 19-Jan 30-Jan 10-Feb 21-Feb 03-Mar 14-Mar

outflows. Commodity prices, especially the sharp drop in oil

Source: CEIC; and IMF staff calculations.
prices, posed a further challenge for many countries, while
aiding those countries that imported commodities.

There's now a consensus that the shock of the coronavirus outbreak will push the US into a recession temporarily, ending the
longest-ever economic expansion on record. Projections that US GDP would falter have come from firms such as Goldman
Sachs, Deutsche Bank, J.P. Morgan, Bank of America, and more. According to OECD, annual global GDP growth is projected to
drop to 2.4% in 2020 as a whole, from an already weak 2.9% in 2019, with growth possibly even being negative in the first
quarter of 2020. Provided the effects of the virus outbreak fade as assumed, the impact on the confidence and incomes of
well-targeted policy actions in the most exposed economies could help global GDP growth recover to 3.25% in 2021. A longer

Available on Social Media

SMS “invest” to 6655 0800 - HALAL (42525)
www.almeezangroup.com

Disclaimer: All investments in mutual funds are subject to market risks. Past performance is not necessarily indicative of the future results. Please read the Offering Document to understand
the investment policies and risks involved. While due care has been taken, we have relied on several data sources from external research and thus cannot guarantee accuracy of data and
views expressed thereon. Given the unique nature of the pandemic and given we have limited information on the scenario, we highlight that we are neither virologists nor experts in medicine
to suggest an authoritative account of scenarios. Investors are therefore advised to exercise diligence; we do not recommend decisions solely on the basis of shared information.
 lasting and more intensive coronavirus outbreak, spreading widely throughout the Asia-Pacific region, Europe and North America,
would weaken prospects considerably. In this event, global growth could drop to 1.5% in 2020, half the rate projected prior to
the outbreak of the virus. Thus, it is clear that we will likely witness a “V-shaped” economic recovery whereby as world economic
growth drops in 2020, it is expected to quickly recover in the subsequent year.
%, y-o-y %, y-o-y %, y-o-y
World G20 Advanced G20 Emerging
3.4 2.1 4.9
3.3 2.0 4.8
3.2 1.9 4.7
3.1 1.8 4.6
3.0 1.7 4.5
2.9 1.6 4.4
2.8 1.5 4.3
2.7 1.4 4.2
2.6 1.3 4.1
2.5 1.2 4.0
2.4 1.1 3.9
2.3 1.0 3.8
2019 2020 2021 2019 2020 2021 2019 2020 2021
Mar-20 Nov-19 Mar-20 Nov-19 Mar-20 Nov-19

Note: Projections from the current Interim Economic Outlook and the November 2019 OECD Economic Outlook.
Source: OECD Economic Outlook database.

Impact on Pakistan’s Economy

The impact of coronavirus is expected to be a mixed bag for Pakistan’s economy as it will result in slowdown in economic growth
due to reduced domestic and external demand. However decline in prices of commodities, especially crude oil, will help lower
the trade deficit and inflation outlook even more. With decline in inflation, the interest rates are also expected to further ease
which bodes well for both government and private sector borrowers. Eventually if oil prices remain at current low levels,
remittances from the Middle East can witness a slowdown.

Pakistan imported crude oil at an average price of around USD61/barrel during 8MFY20. While after the break-up of OPEC +
cartel this month and impact of the corona pandemic, Arab light oil has fallen to USD31/barrel (down 55% in CY20TD). To put
this in context, every USD10/barrel decline in crude oil price results in import bill savings of around USD1.8 billion per annum
based on current consumption. Thus if oil prices remain at current level, we can potentially witness annual import bill saving in
excess of USD5 billion. Since the current oil prices reflect slowdown in world economy and extra production by oil producers,
eventually it is projected to improve gradually and consequently we have assumed oil prices in range of around USD 40/barrel
in our models going forward, which will still reflect decent savings in import bill.

While drop in oil prices and other imported commodities’ prices such as steel, chemical, plastic, coal etc. is beneficial for
Pakistan, our exports will also witness a drop mainly in textile. Due to closure of retail stores in EU and USA, textile orders for the
next few months will witness a slowdown. Apart from drop in volume, international cotton prices have also dropped and are down
by 24% in CY20TD, thus textile exports in value terms will remain under pressure for at least a couple of quarters but are likely
to regain growth once things normalize. It must be noted that since the hefty devaluation witnessed in last couple of years, our
exports have regained competitiveness and textile volumes have increased.

Oil price drop to substantially lower import bill Cotton price fall to adversely impact exports
90 90
80 (USD/Barrel) (Cents/Pound)
Arab Light oil Cotton
70 80

60
70
50

40 60
30

20 50
Jul-16

Nov-16

Mar-17

Jul-17

Nov-17

Mar-18

Jul-18

Nov-18

Mar-19

Jul-19

Nov-19

Mar-20

Jul-16

Nov-16

Mar-17

Jul-17

Nov-17

Mar-18

Jul-18

Nov-18

Mar-19

Jul-19

Nov-19

Mar-20

Source: Bloomberg Source: Bloomberg

Available on Social Media

SMS “invest” to 6655 0800 - HALAL (42525)
www.almeezangroup.com

Disclaimer: All investments in mutual funds are subject to market risks. Past performance is not necessarily indicative of the future results. Please read the Offering Document to understand
the investment policies and risks involved. While due care has been taken, we have relied on several data sources from external research and thus cannot guarantee accuracy of data and
views expressed thereon. Given the unique nature of the pandemic and given we have limited information on the scenario, we highlight that we are neither virologists nor experts in medicine
to suggest an authoritative account of scenarios. Investors are therefore advised to exercise diligence; we do not recommend decisions solely on the basis of shared information.
 Since our imports of services which stood at USD6.1 billion during 8MFY20 also outweigh exports of services which clocked in
at USD3.7 billion, slowdown in transport freight and traveling is also likely to reduce the services deficit which has increased in
recent years. Thus, the fall in the prices of commodities and services is expected to positively impact Pakistan’s external account
balance and should lead to drop in both goods and services deficit. Remittance from Gulf countries however are at risk of falling
under this oil price scenario. Proportion of remittance from Gulf countries stood at 63% of total between FY13 and 16 but has
since dropped to 54% in FY19 as impact of lower oil prices after FY15 weighed in on economic activities in the region.
Surprisingly, despite the hefty fall in oil prices, remittances from Gulf countries have remained rather sturdy while growth has
been witnessed from other countries especially USA and UK. Even in 8MFY20, we have witnessed 5.4% growth to reach
USD15.1 billion, with remittance from Gulf countries rising by 4%. Nonetheless lower oil prices are likely to lead to some decline
in remittance from Gulf countries and we have built that in our projections. After accounting for decline in the goods & services
deficit and subsequent decline in remittances, we are of the view that on a net basis, Current Account Deficit (CAD) should
decline from the latest developments.
Imports drop to outweigh exports fall Remittances from Gulf countries can also fall
6.5 (USD Bn) Trade & Services deficit (RHS) Imports of goods & services (LHS) 4.5
25 (USD Bn) Gulf countries Other countries
6.0 Exports of goods & services (LHS)
4.0
5.5
20
5.0 3.5
4.5 7.2 10.1
3.0 15 6.7 7.2 8.5
4.0
3.5 2.5 6.1 7.1
10 5.5
3.0
2.0
2.5 12.8
1.5 5 12.1 11.4 11.7
2.0 8.5 9.7 12.0 8.1
1.5
1.0 0
Jul-16

Oct-16

Jan-17

Apr-17

Oct-17

Jan-18

Apr-18

Jul-18

Oct-18

Jan-19

Apr-19

Jul-19

Oct-19

Jan-20

FY13

FY14

FY15

FY16

FY17

FY18

FY19

8MFY20
Source: SBP Source: SBP

SBP in its monetary policy meeting held last week projected real GDP growth for FY20 of around 3.0% down from earlier
expectation of 3.5%. With the number of COVID-19 cases increasing considerably in Pakistan, prompting social distancing and
curtailment of activity, SBP now expects growth to be revised down further. While expecting a modest recovery next year provided
that the spillover impact of the coronavirus outbreak on global trade and financial markets is moderate and short-lived. In such
a scenario, the export slowdown and market volatility should be contained while the benign growth and inflation impacts of lower
global commodity prices would dominate. Under an adverse scenario, a more prolonged and severe phase of weak demand in
Pakistan’s major export and remittance markets and depressed sentiment among domestic consumers and businesses could
have a more material impact on growth. In both these scenarios, the impact on the current account was expected to be mildly
positive as the savings from low oil prices were expected to offset potential weaknesses in net exports and remittances.

Inflation & Interest rates to further ease SBP reserves & Import cover are gradually improving
16% 20.0 (USD Bn) SBP reserves Imports cover in weeks (RHS) 24
CPI Policy Rate 22
14%
17.5
12% 20
15.0 18
10%
16
8% 12.5
14
6% 10.0 12
4%
10
7.5
2% 8
0% 5.0 6
Jan-16
May-16
Sep-16
Jan-17
May-17
Sep-17
Jan-18
May-18
Sep-18
Jan-19
May-19
Sep-19
Jan-20
May-20
Sep-20
Jan-21
May-21
Sep-21

Jan-15

May-15

Sep-15

Jan-16

May-16

Sep-16

Jan-17

May-17

Sep-17

Jan-18

May-18

Sep-18

Jan-19

May-19

Sep-19

Jan-20

Source: SBP, PSB, AMIM ESTIMATES Source: SBP

Available on Social Media

SMS “invest” to 6655 0800 - HALAL (42525)
www.almeezangroup.com

Disclaimer: All investments in mutual funds are subject to market risks. Past performance is not necessarily indicative of the future results. Please read the Offering Document to understand
the investment policies and risks involved. While due care has been taken, we have relied on several data sources from external research and thus cannot guarantee accuracy of data and
views expressed thereon. Given the unique nature of the pandemic and given we have limited information on the scenario, we highlight that we are neither virologists nor experts in medicine
to suggest an authoritative account of scenarios. Investors are therefore advised to exercise diligence; we do not recommend decisions solely on the basis of shared information.
 The outlook for inflation has improved in light of the recent deceleration in domestic food prices, sharp fall in global oil prices,
and slowdown in external and domestic demand due to the coronavirus pandemic. Average headline inflation is expected to
remain around 11.2% and will likely witness significant fall next year to around 7%. From this month we have seen the start of
monetary policy easing with a policy rate of cut of 75bps bringing it to 12.5% in scheduled central bank meeting held last week,
citing that it stood ready to take further actions if and when needed as more information becomes available on the outlook for
inflation and growth. Since inflation is projected to witness a substantial decline within the next twelve months and external
account prospects remain positive, the MPC in its emergency meeting held yesterday has decided to cut the policy rate by a
further 150bps to 11%, bringing the cumulative easing to 2.25%. We expect further easing to continue in the coming quarters
and anticipate policy rate to reach single digit by calendar year’s end. SBP also announced that it is in the process of taking
necessary regulatory measures in coordination with banks to address pressures on cash flows of borrowers affected by
coronavirus related disruptions through facilitating deferment and restructuring of their loans.

Due to unsustainable CAD during FY17-FY19 when it clocked in at average USD15.4 billion per annum, foreign exchange
reserves held by SBP dropped from USD18.9 billion in Oct-16 to recent low of USD7.2 billion in Dec-18. Post devaluation which
brought PKR near its equilibrium level as measured by Real Effective Exchange Rate, we have witnessed a substantial drop of
72% in CAD for 8MFY20 to reach a more manageable level of USD2.7 billion. After entering a new IMF program in FY20, lending
from multilateral agencies has resumed which has resulted in SBP’s reserves climbing to USD12.7 billion and import cover also
increasing to around 15 weeks.

Outlook for PSX

KSE-100 index after suffering a hefty fall in FY08 & FY09 went on to give eight consecutive years of positive return till FY17. The
market P/E of KSE-100 rerated from 5.6x in Jan-12 to reach 12.0x in May-17. After reaching its peak of 52,876 points in
May-17, it declined by 46% in Aug-19 due to worsening external account and doubling of interest rates. However, since its
recent low, the market made strong comeback due to improving external account prospects and drop in secondary market yields,
climbing to 43,219 points till Jan-20. However, since then, the market has given up all the gains it made recently due to
aggressive foreign selling and the impact of corona pandemic negatively impacted the equities globally.

The point to consider in our view is that globally especially in the USA, the markets have done really well in the last ten years due
to low interest rates and massive quantitative easing. Whilst in the case of Pakistan, the last five years return of stock market has
been -12% due to economic crises. MSCI Pakistan after outperforming global indices till 2017 has badly underperformed since
then, showing that it has decoupled from them to a large extent. However, with start of decline in interest rates, there are strong
chances of PSX rerating upwards from its current trough valuation of 5.0x to at least near its long term average of 8.2x while
globally valuation of many indices are above their long term P/E. Fundamental analysis favors an upward trajectory in the local
equity market on the back of structural reforms and the entailing macroeconomic recovery, the rerating of the market, and the
mean reversion of the index in the near term.
PSX has underperformed in recent years… … and is now trading at trough valuations
225 12.0 KSE-100 Index Forward PE
MSCI World MSCI EM MSCI Pak
200 11.0
10.0
175
9.0
150
8.0
125
7.0
100 6.0
Source: Bloomberg

75 5.0
50 4.0
Jan-11

Sep-11

May-12

Jan-13

Sep-13

May-14

Jan-15

Sep-15

May-16

Jan-17

Sep-17

May-18

Jan-19

Sep-19

Jan-11

Sep-11

May-12

Jan-13

Sep-13

May-14

Jan-15

Sep-15

May-16

Jan-17

Sep-17

May-18

Jan-19

Sep-19

Available on Social Media

SMS “invest” to 6655 0800 - HALAL (42525)
www.almeezangroup.com

Disclaimer: All investments in mutual funds are subject to market risks. Past performance is not necessarily indicative of the future results. Please read the Offering Document to understand
the investment policies and risks involved. While due care has been taken, we have relied on several data sources from external research and thus cannot guarantee accuracy of data and
views expressed thereon. Given the unique nature of the pandemic and given we have limited information on the scenario, we highlight that we are neither virologists nor experts in medicine
to suggest an authoritative account of scenarios. Investors are therefore advised to exercise diligence; we do not recommend decisions solely on the basis of shared information.
 As the cure for this pandemic will eventually be found, global growth is expected to witness rise and we expect the same for
equities. We therefore recommend all investors with a long-term horizon to remain invested in equities based on their risk profile
and appetite. Meanwhile to investors with a short-term horizon, we offer a complete suite of income and money market funds
which offer competitive returns and low-risk investments.

Prevention is better than cure. Practice social distancing!

To learn more about basic protective measures against the coronavirus, please visit WHO website:
https://www.who.int/emergencies/diseases/novel-coronavirus-2019/advice-for-public.

We as a nation need to play a role in flattening the curve by staying at home, practicing social distancing and following the
instructions given by the government. Therefore, we highly recommend our investors to carry out all their transactions
(Investments, Conversion, Redemption) digitally through our robust Mobile Application
(https://play.google.com/store/apps/details?id=com.pc.app.almeezan) and Member Service Area
(https://members.almeezangroup.com/), instead of visiting our branches.

Mobile Applications:

Available on Social Media

SMS “invest” to 6655 0800 - HALAL (42525)
www.almeezangroup.com

Disclaimer: All investments in mutual funds are subject to market risks. Past performance is not necessarily indicative of the future results. Please read the Offering Document to understand
the investment policies and risks involved. While due care has been taken, we have relied on several data sources from external research and thus cannot guarantee accuracy of data and
views expressed thereon. Given the unique nature of the pandemic and given we have limited information on the scenario, we highlight that we are neither virologists nor experts in medicine
to suggest an authoritative account of scenarios. Investors are therefore advised to exercise diligence; we do not recommend decisions solely on the basis of shared information.