What does bear market mean? According to Investopedia, a bear market is a market condition in which prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining. As investors anticipate losses in a bear market and selling continues, pessimism only grows.
At the dawn of 2009, who would have thought that KSE would yield investors 60 percent by the year end? The benchmark index was tumbling, sentiments were abysmal and the only thing rising was nervousness.
The way the market played out, however, was phenomenal; partly due to recovering economy, which attracted plenty of foreign portfolio inflows, and partly due to sharply recovering sentiments that maintained a bullish bias while sidelining the delay in non-IMF foreign inflows, NRO and its related complications, and the rebound risks in global commodity prices.
How will equities fare in the coming year is the next big question. Seeing through the growing storm of bombs, riots, drone attacks, juggernaut politics and what not, investment managers and brokers still manage to bank on discounted share values relative to the region, and hopes of better corporate earnings.
But for how long. The house of cards is crumbling. Each day brings a new attack, leaving more death and giving more reasons to the foreigners to not-to-invest, if not disinvest, in the country. Meanwhile, corruption charges against politicians and diplomatic inefficiencies keep the donors money at bay.
In absence of these inflows, private sector credit will likely keep struggling while the State Bank ponders over how to steer further towards low interest rates. Central bank watchers aren too optimistic about the possibility of single-digit base rate over the next twelve months. In short, we are still stuck in a bear market.
The political canvas isn too pretty as well. A Pandoras Box, that is NRO, is left open with perhaps as many views as the cases it has reignited. There are also a lot of noises regarding armys next move, about PPPs Sindh card, and about future of presidency amongst other so far officially dispelled anecdotes.
No wonder, sans Wednesdays trade, the market lacks momentum and has been showing persistent weakness since it slid from its vain attempt to summit 10,000 mid October. The market clearly needs to gather more steam, something for which 100-index would need to drop further to 8400~8700 points in the immediate term.
However, the kind of irrational exuberance investors expressed last week, don be too surprised if the index aims for 10,400~10,700 points in the upcoming weeks, following which, albeit, equities might have no option but to stumble with a loud crack.
This makes sense both technically and fundamentally. On the chart, is a strong resistance around the said range, which is roughly reminiscent of spring 2005 and summer 2006 levels. Compared to expectations of high economic growth at that time, very few economists today see dramatic growth this year or the next.
But that doesn necessarily mean one should quit stocks; just look for good defensive plays, which have strong balance sheet and offer dividends to compensate for the downturns. As for the timing, its best to wait for the big plunge.
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