The PSX bloodbath

What exactly do they mean when they say the market has a mind of its own? Is it another way of saying that no one really knows why the market is behaving in a particular way? Does it mean that because the market “sophistically” aggregates all the opinions, assigns them appropriate weights, and acts accordingly, it therefore hardly ever accurately mirrors any single person’s view? Or perhaps it means the market behaves independently of the persons involved in it, as if (at the risk being gender insensitive) it’s a woman’s shopping trolley, which too is claimed to have a mind of its own, buying things that are needed not.

Consider the recent market action. When the Panama Case verdict was finally announced in April 2017, the market’s immediate action was a soaring rally to the heavens, as if risks of political hell do not exist anymore. A more than 1800 points gain in a single day, even though there was nothing in the judgment that gave a clean chit to PM Nawaz and other defendants.

When BR Research spoke to the buy and sell side of the market back then, most said the prime minister has come clean; others said there is nothing dangerous about the formation of JIT, “it’s only a formality.” Only a handful accepted that the PM is not yet in clear waters, “but at least there is no uncertainty.” Hence they jacked up the market in euphoria, with the balance of opinion being that danger has left the constitutional avenue.

How bizarre then it seems that a few weeks down the line when the JIT sends out merely a notice to call the PM for investigation, the market simply tanks. Monday’s intraday market chart looked like a Niagara Falls of blood.

If on April 20th, the balance of opinion was ‘that the PM is out of danger,’ and that the PM’s appearance in front of JIT – a fact well established in the Supreme Court’s judgment – was already priced in, then the JIT’s mere call notice to the PM shouldn’t have rattled sentiments. It’s not as if the JIT has implicated the PM; it is only an operational exercise for something well known since April. The call notice can explain normal market weakness, but it cannot explain a record fall.

Baffling also is yesterday’s 400-point gain, which market sources attribute to short covering and value hunting at lower price level. Baffling, because yesterday’s headlines read aloud JIT concerns that the government is tampering and changing records relevant to the case. True or not, these headlines should have dampened sentiments further because it suggests a hostile environment still prevails at the constitutional avenue.

This column is not in the business of making forecasts about the stock market, but in the interest of the general public readers need to be cautioned that this market, like many other markets, has a short memory; it lacks consistent reasoning and more often than not it misreads complexities. It also has an inherent ‘bullish bias’ that taints good judgment quite frequently, and small investors often suffer by unknowingly consuming the ‘bullish bias’ being peddled by their stock brokers. A shopping trolley with a mind of its own feels good in the moment, but it also leaves gaping holes in the wallet.