At price-to-earning ratio of 6.8x and dividend yield of 8 percent compared to average regional P/E of 14.7x and dividend yield of 2.3 percent, equities listed at Pakistan Stock Exchange are quite an eye candy. But like an eye candy they are only attractive to look at and not interesting otherwise.

Even after the reports of a government bailout fund – a move that has attracted criticism from all independent voices – the benchmark PSX has failed to lift off for over a month. June saw KSE-100 shave off 6 percent while average volumes also remained poor at an average 98 million. Stock prices rose for a few days after the announcement of budget FY20, but post-budget uncertainties clipped those gains pretty soon.

Meanwhile, following exchange rate fluctuations, foreign investors have remained at bay; they were net sellers in June. So were brokers, asset management companies and insurance firms within domestic market. The only local market players who placed relatively bigger buy orders for the month were banks and corporations – but not enough to lift the market up as they were only cherry picking at the bottom.

This week is critical. The IMF's board is scheduled to meet this week. That news flow, and expectations thereof, will be the single biggest determinant of the direction of trade this week. A rebound rally can also be expected. But sometimes betting on hope can be a dangerous thing. Those who don't exactly want to bet in the dark, are best advised to wait for the complete IMF document to be released and its scrutiny by independent economists. Who knows what devils sleep between those pages!

Already there are enough uncertainties on the plate, aside from rising inflation and ensuing monetary policy action. Volatility in both directions marks Pakistan's new exchange rate regime; the market is still to come to grips with that new reality. Complete results of the asset declaration scheme won't be out anytime soon, whereas FBR's plans of documentation, sending of notices, analytics-based revenue collection to meet its FY20 targets will also take at least a few months before it starts giving confidence to the market over the government's fiscal affairs.

Bottom-line: smooth transition to IMF programme, and business confidence over FBR's plans are critical to driver bears away from the PSX. Over the last fortnight the index has moved back closer to its recent low of 32,354 points, and if it breaks below, then as flagged earlier in this space, the market could be exposed to about 28,000 points. The market action this week might the tone for the rest of the fiscal year. (See also BR Research's ‘Has KSE-100 found its bottom?', May 21, 2019 & ‘Stocks rebound: a helium-balloon?' May 27, 2019).

Copyright Business Recorder, 2019