KSE-100: consolidation at play?

One would have thought that investors at Pakistan Stock Exchange would start exercising caution following the onset of the second wave of Covid-19 at home and abroad. But it appears that investors have instead thrown caution to the wind.

Since mid-September 2020, the market has been in a rather consolidating mode. As second wave of Covid-19 gathered strength, that consolidation extended itself rather than turning into a weakness. In fact, shallow retracement to 39-K levels, followed by a slight recovery is being read by some investors as an underlying strength. The bouncing back of foreign markets alongside side rising international oil prices has also helped improve sentiments.

Interestingly, insurance players are back in the game since the ongoing consolidation began in September 2020; these players weren’t aggressive buyers even when the market tanked to 27-K levels in August 19 and March 2020. In both cases, it was local individuals who took a punt on the market, which had paid them off well. Individuals, however, aren’t as aggressive these days as they were between Mar-Sep 2020. Which is rather surprising given the slate of positive news of late.

These strands of news include Hubco’s expansion amid prospects of power sector reforms; debt relief from Paris Club; the promise of about $8 billion investment from China under Ravi City project; stronger worker remittances; exciting flows in Roshan Digital account; and rising oil prices which suits oil and gas exploration sector.

These kinds of developments have historically helped the benchmark index rise above uncertainties and move north. Yet, the market chooses to consolidate itself. Perhaps, investors have decided not to throw caution to the wind after all, and instead decided to wait and see the outcomes of Covid-19’s second wave and the brewing political noise that might culminate into resignations. In the meanwhile, the increase in average trading volumes suggest that sector rotation and cherry picking at the bottom is at play. Hindsight will reveal its cards soon!