End of June wrapped up a very interesting financial year for the Pakistan Stock Exchange. The benchmark KSE-100 index posted a hefty return of 23.2 percent for FY17, its best return since FY14. The return itself doesn’t tell the complete story as it has been a bi-polar year with the first half being very good and the second half full of misery.
FY17 started with peak optimism for the investors. MSCI was to consider upgrading the market to emerging market status, CPEC projects were being announced left right and center, PSDP outlay was huge, macro situation relatively stable and there was not much political noise.
Come November, the situation started to change when the apex court following a ‘dharna’ in Islamabad decided to hear the Panama papers case. Between November and January, the market had its best months. Most market participants were of the view that the case would prolong and would soon be forgotten just like many cases in the past. They could not have been more wrong.
As the court proceedings and hearings intensified, the market started to react to every news bite. The ruling party’s political capital formed a direct relationship with investors’ capital. The market tape was following the news tape. Volatility increased and that is where most small investors, momentum and short term traders lost out.
To make matters worse, macro situation turned bleak, the budget disappointed and the MSCI upgrade turned out to be an anti-climax. The index corrected almost 18 percent from its high just a few points shy of bear market threshold of 20 percent.
The market veterans would tell you that when it is time to take money off the table, multiple reasons are used. This same market has seen far worse macro condition, political instability and foreign outflows. Not only has the bourse survived those situations but has also thrived. Myopic traders who felt the recent brunt will always have a gloomy tale to tell while long-term investors are still deep into the money.
Looking forward, investors would be hoping for some sort of clarity on the political front which seems unlikely because even if the accused in the Panama case get a clean chit, election drums would start beating which itself will bring positive and negative moments. In times like these, it would not be wise to expect a broad based rally. The index is likely to remain range-bound unless multiple positive triggers come from somewhere.