PSX: theme for the bottom

At Pakistan Stock Exchange, valuations are great; mood is quite the contrary. The market has tanked sharply since it hit the record high in late May 2017, about a month after irrational exuberance over the Panama Case judgment had sent prices north that translated into an 8 percent gain between April 20 and May 24. Since then, the benchmark PSX has slipped 12 percent.

Brokerage houses report a host of factors expected to give direction to the market in the ensuing weeks: (a) political uncertainty over JIT; (b) the upcoming result season; and (c) the rollover week in the immediate term. They are, however, quick to add that ‘it’s a good to time to cherry pick stocks at the bottom’. There are two problems with that statement.

Firstly, sell side analysts misread the market more often than not; the latest being their euphoria over the Panama Case judgment announced April 20. That misjudged euphoria left many fingers burnt. (See BR Research column: The PSX bloodbath, published June 14, 2017.)

Secondly, who’s to say where the bottom lies. Does it lie at the 300-day moving average of 43603 or the 500-day moving average of 39524, or somewhere in between? The answer to this question rests on the kind of scoops and views media produce about the JIT. It also rests on how market participants chew over developments related to the JIT.

The just-ended holidays are sufficiently long to bring some clarity in thinking. Assuming that year-end portfolio adjustments by banks and mutual funds are behind us, the action today should provide clues to how the market is thinking.

After thought:

MSCI rebalancing or not, it appears that foreigners are not interested in what is oft touted as the ‘best performing’ market. Nor have foreigners been active sellers due to Panama or JIT. Wonder what Ishaq Dar would have to say? It also appears that individuals have an increasingly low involvement in the market, save for between May 27 and June 3 in recent past, when foreign selling ($149mn) in the wake of MSCI rebalancing was absorbed mostly by local individuals ($75mn).