KSE: long on fear, short on greed

Signs of frustration are setting in at the KSE. Despite calls of only a healthy short-term rate-hike-led correction advocated by local sell-side equity analysts, the only buyers in the market last week were foreigners. Local investors, as usual, remained on the sidelines.
And they have every reason to be nervous; though corporate earnings may be promising for the upcoming quarters and though the valuations may be cheap, overall economic and political outlook of the country is still uncertain with a capital U.
Fiscal imbalances, inflation stoked by power tariff hike amidst other structural issues are changing sentiments in the market. Bond yields have jumped sharply, since the central bank jacked up its policy rate last month.
"The hawkish tone of the policy statement indicates that the SBP sees inflation posing a significant challenge ahead and stands ready to raise rates further. This makes additional hikes likely, given the governments expansionary fiscal stance and strong possibility that it will miss key revenue and deficit targets", Ali Sayem, economist at Standard Chartered Bank cautioned last week.
If macro-economic worries weren enough, flood and growing ethnic violence in Karachi are adding to the already ballooning bag of uncertainties. With poor governance being the signature of ruling regime, there are serious risks over the much-needed reforms.
Then, of course bear in mind that by nature, reforms, whether or not accompanied by efficient governance, have an inherent element of uncertainty.
This obscure business and economic environment is also reflecting in several local brokerage houses, including those which enjoy the reputation of being in the top 5 or top 10 in Pakistan.
Some brokerage houses are hiring analysts as internees instead of full-time employees, some have decided to slash paychecks by 25 percent across the board, whereas others have completely shut down their operations. So, for those who are still bullish on the market, here is a bit of advice: stay long on fear and uncertainty and remain short on greed.