PSX: slipping on political noise again

Ever since the initiation of panama-gate case hearings, the stock market has been feeling the brunt of it. The investors have been following the media circus around it, and any development be it positive or negative for the ruling party is met with the corresponding price action on the bourse.

Investors do not like uncertainty, especially political uncertainty as it is very hard to forecast numbers based on news bites. The problem with this panama issue is that it has not only increased uncertainty but it has also dragged on for far too long, and investors have gotten tired of it and are itching to get back into normal trading mode. This behaviour can be gauged by the snap reaction to the Supreme Court verdict, which took the KSE-100 index up 1,700 points the same day.

The verdict from the Supreme Court was not exonerative; rather majority of the bench was undecided. But investors and traders had already suffered two months of limbo with this issue and decided to ignore the negative bits and just said ‘lao maal’.

During the six weeks post the Supreme Court verdict, there have barely been any positive triggers for the market. Two major events in May, firstly the budget and then the MSCI EM upgrade both disappointed the market. More taxes have been levied and the expected foreign inflows turned into outflows.

To add salt to the wounds of investors, the Prime Minister has been called by the JIT to answer few questions. Nothing may come out of this saga eventually but investors are looking at it from an economic point of view - as to how much groundwork the government can actually do if it is actually spending most of its defending itself.

However, over the last few years the market has seen various events pass by and it has invariably retraced back to continue upward trajectory. Investor’s resilience has been tested numerous times and every time they have come on top.

This time though, with lack of fundamental triggers and the political scene setting up for the next elections, sideways movement can be expected.

Technically speaking, last week’s closing was not good and had exposed the index for further downside, which materialized on Monday with an 1800 points drop.

The index can get some support from around 47,500 levels but with low volumes and shortened trading hours due to Ramadan, solid buying is unlikely to be witnessed and a retest of previous panama lows around 46,000 can occur.