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The drama at Chundrigar seems to have been forgotten too soon. At least so it seems. Those who bought during the crash of late March 2020 are beaming with pride and pleasure. Yet the rather flat performance of benchmark Pakistan Stock Exchange over the last few weeks makes one wonder about the times to come.

On paper, a few developments point to hunky-dory outlook of equity market. The oft optimistic types are pointing to the fact that provisional estimates of GDP contraction by the government is less than the estimates made by the central bank and the multilaterals. Obviously, for typical sell-side players, especially those who act as PTI’s groupies on social media, that announcement was a quite a delight.

Then of course, the age-old slogan of Pakistan’s attractive valuations. According to various brokerage house estimates (Arif Habib Limited, AKD Securities, BMA Capital), Pakistan’s price-to-earnings Pakistan are one of the cheapest in the region, whereas on dividend yield comparison it offers the highest yield in the region.

Strangely though, those who ought to buy into that mantra are not buying at all; perhaps Miss Pakistan isn’t the darling of foreign players after all. Foreign investors have been offloading Pakistani stocks (on net basis) since August 2019; more visibly since the start of CY20, and even more so since late March 2020.

While long term players from local market (read: insurance sector) have been consistent buyers since January, it is high net worth individuals, family offices (whose transactions often reflect under the head of companies in NCCPL data), and mutual funds who have been relatively more active at the buy counter over the last two months.

That move is largely attributed to the substantial rate cuts by the central bank and an outlook of further cut in interest rates. Little wonder then that the yield differential between equities and governments bonds has yawned over last year in favour of equities, where the move since late March 2020 has been more pronounced.

Despite all this, the KSE-100 seems to have flat lined over the last few weeks, Friday’s gain notwithstanding. Perhaps it is the usual pre-budget jitters, as federal budget FY21 is due to be announced on June 12 at a time when uncertainties abound both on external, and fiscal fronts. Then again, some players such as brokerage Arif Habib Limited expect “growth focused budget” which “should also help keep confidence upbeat”. Or perhaps, the excitement of attractive valuation has waned because of the limits to utopia.

The biggest worry on investors’ minds, however, should be about the pandemic, the lockdown, and other related affairs. By mid-June, the impact of lockdown easing is expected to become visible given the general lag between when the virus infects and when its symptoms appear.

If all hell breaks loose, leading to new, stricter and longer lockdown, then economic outlook will turn bleaker than it currently is. To that end, developments over the weekend weren’t promising. Escalating number of both daily Covid cases and daily Covid deaths, amid reports of some leading hospitals in Karachi facing shortage of beds and doctors being attacked at government hospital should be seen as red flag.

On paper, uncertainty stemming from these developments should have already bitten market sentiments pushing the index south of 27,000 points. But some investors like to adopt wait and see approach without appreciating that shock often happens during wait and see, as how a deer caught in the headlights is often hit by the oncoming vehicle. Will fortune favour the brave or will the brave soon discover that fine line between bravery and folly? The answer to this question will appear soon. (See also ‘Has the KSE-100 bottomed out?’ April 14 2020)