PSX in January: caution or opportunity?

Turn of the year has been rather worrisome for equity investors as the negative sentiment reached a new high in January. For the first time since March-end last year, the benchmark index sneaked under 30,000 points on Monday. In the three consecutive sessions (to Monday), the market has tanked 1,525 points - or nearly five percent. This recent rout (in global equity markets) has been spurred by the persistent scare regarding global growth and plunging oil prices.
The oil glut is set to deepen as sanctions on Iran exports were lifted over the weekend. Brent plunged to depths unheard of since 2003 (sub-$28 a barrel). Pundits are expecting black gold to find a bottom near $20 a barrel, but a lot still depends on Iran's production levels in the coming months.
In what has been the worst start to a year since (January) 2009, the KSE100 index has come off 5.3 percent in the 13 trading sessions this month. On the past two occasions when the market shaved off more than five percent in the opening month - 2003 and 2009 - the year-end returns were north of 60 percent. This time as well, the fundamentals are in place for a rally despite a dismal opening.
Investor moods can shift rather quickly locally, but the next month or so is expected to remain downward-volatile for PSX. Foreign selling has been a key detractor for the market in the past six months, and continues to be so in January. Overseas investors have a net selling position of $29 million this month.
With oil perceived to be much closer to its bottom than it was at the start of the year ($37 vs. $29) and with sharp, consecutive sell offs, the markets (prospective) downside has been significantly curtailed. While the negativity lives, a buying opportunity has certainly surfaced. If the market dips another 2000 points or so, there might remain too few sellers to buy from.
Considering a longer time horizon - CY16 - the market becomes all the more attractive. Prospective entry to MSCI Emerging market index, heavy discounts to regional bourses, and CPEC's contribution to the country's power and infrastructure sectors are big pluses. So much so that sell-side analysts are expecting the market to end the year at 38,000-39,000 points, representing upside of around 25 percent.