Geopolitics reigned supreme over equity trade on Monday and investors seemed to be paying more attention to the words of an American army general than the countrys economic statistics. Last week, the Federal Bureau of Statistics provided a pleasant surprise to the countrys equity markets when it reported Augusts CPI inflation at 11.56 percent, slightly lower than expectations and crucially building the case for a downward revision in the discount rate, in upcoming monetary policy statement. Cut-off yields on the 12-month T-bills mirrored this expectation; as rates dropped by 9 bps to 13.31 percent, on September 21, 2011. Similarly, in the secondary market the PKRV on the 12-month paper stood at 13.17 percent, on Monday, down from 13.43 percent on September 1, 2011. However, as is often the case; politics reigned supreme over investors sentiments and economic developments took the back seat as the KSE-100 plunged more than 450 points during trade on Monday. The frenzied sell-off appeared in line with the meltdown of global stocks and commodities markets. The MSCI Asia Pacific Index has plopped to its lowest level in 16 months; gold prices fell about 4 percent on Monday and silver rates saw their biggest single-day decline in three years. "But the elephant in the room is the deterioration in relations between Pakistan and the US" asserted BMA head of equity, Hammad Aslam. He said that investors are concerned that the mounting US pressure may culminate in the restriction of aid and economic flows; which would pose disastrous implications for the economy. Not all stakeholders expect doom and gloom though. "The government has summoned an all party conference to take them on board about efforts in the war against terror; that is a major positive development" contended director, Arif Habib Investments Ehsan Mehanti. He also highlighted the strength of inward remittances, the current account and lower inflation as positive cues for investors. Technical analysts had flaunted the recent performance of the index as confirmation of resilience against melting global equity prices. However, Mondays sell-off has trimmed their forecasts, significantly. "If the benchmark index breaches 11,101 level without surpassing 11,440 points, the market could be in for a severe bearish spell" warned AKD technical analyst Qasim Anwar. KSE 100-index ended the first day of the week down 342 points, at 11,265 points, while the broader market was overwhelmingly bearish as well. It appears that the panic brought on by strained relations between Pakistan and the US will only be quelled by soothing statements from both sides. That said, punters have seemingly overplayed the Pak-US rift. While a statement of confidence from each side may douse concerns significantly; political uncertainty is hardest to predict -keep the fingers crossed!
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