Say a little prayer for the stocks, and for those who were blinded by the euphoria and invested in the record-high-making spree following the initial Panama Judgment in late April 2017. Yesterday’s close was the lowest tick for KSE-100 since June 30, 2016 at thin trading volumes of 56 million, whereas the day before the benchmark index witnessed its lowest trading volume since May-2014.
So bad are the trading volumes that trading in the top 100 firms tracked by the KSE-100 is down to an average 67 million in the month to date; its been thinning since August 2017. Since KSE-100 index also comprises of the firms that are usually thinly traded or even not traded, trading volumes of the volume-based BRIndex100 (available at khistocks.com) is a better indicator of how dull things have become at the bourse. BRIndex100’s volumes have also thinned since its inception in July 2017.
The reasons behind such morbid performance are rather well known by now; this column has long been talking about it, long before the market even smelled the bear.
The same reasons exist today. Shahbaz Sharif may have been given a clean chit, but that does not mean that the political noise is over- far from it.
With dharnas in vogue, the run up to the elections will rein investors’ minds. Granted that certain quarters may be sure about the timing of the election and about who might win the election.
But unlike the 2013 General Elections, this time around there are far less people who might be sure about the election outcome and that too with far less degree of confidence. That’s what all this uncertainty is about. Well, that plus two more things.
One, the exchange rate depreciation and the uncertain outlook over PKR; currency depreciation as we know it erodes the gains of foreign investors, who by the way have already been net sellers for some time. And there are no signs that they might be eager to jump in the Pakistani stock, especially now as interest rates begin to rise in the US.
Second, for all sense and purpose the interest rates have bottomed out. And while it may be too early to place a bet on it, but given the rise in secondary market 10-year PIB yields, and how bankers are not eager to participate in the primary market because of the low rates offered by the government, it will not be a surprise if the central bank jacks up the rates by about 50 basis points by Mar-May 2018. The first signs of change in economic thinking, and the first signs of tightening are already visible by the recent story of 5 percent depreciation in the PKR.
In this light, as BR Research has been flagging earlier since many months, don’t be surprised if the benchmark index slips down to 36,000 points.
Whether the valuations at that level will be attractive enough to attract hordes of buyers; we will attempt to answer that question once the index hits that level, but consider this: the valuations are pretty attractive even now, but ever wonder why investors are not coming to the buy counter?
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