Yay! Foreign investors were finally back at the Pakistan Stock Exchange last week. They poured in a grand total of $27 million, which is the highest inflow in eleven weeks, as against a net sell of $0.03 million in the week before. Little wonder that the benchmark index rose in four out of five trading sessions, posting a weekly gain of 3.3 percent, its highest weekly gain since the week ended May 26, 2017. Does that mean market’s weakness is over?
Far from it! Weekly gains shouldn’t always be construed as a great indication of the things to come. It was only in recent memory that the market shed nearly 6900 points right after the benchmark index posted a weekly gain of 3.7 percent in late May.
Brokerage reports are labeling last week’s index performance as a “relief rally”. They are labeling it wrong. A rally by very definition got to have a sense of sustained increases or decreases, and that sustainability has to have at least some sense of momentum. What PSX saw last week was a lack of momentum, with average volumes of top 100 companies barely inching to 73 million per day compared to 67 and 78 million in the preceding two weeks?
Recall that when the index shredded 5100 points (between Aug 4 and Aug 22) and 6900 points (between May 25 and July 28), trading volume was relatively higher behind those moves: 89 million and 97 million respectively. Ergo, unless the volumes pick up, gains should not be read as reversal.
Brokerage reports are also citing government plans to boost exports and growth in remittances in fiscal year to date as reasons behind the “rally” and further positive action in the sessions ahead. As if package-based export management has really been working for all these years, and as if there is no such thing as seasonal growth in remittances.
Commenting on market’s future outlook, Arif Habib Securities highlighted “the fading political noise with the Supreme Court dismissing review petition filed by the Sharif clan”. BMA Capital had similar sentiments when it wrote: “dismissal of review petition by Sharif family also subside general take on resurgence of political uncertainty.”
It may be true that FTSE rebalancing may attract some foreign inflows, whereas positive corporate results and expectations of interest rate hike may keep the index from falling sharply in the absence of any serious negative news. But it is equally true that the market does not read local politics. The case of April 20th judgment, when punters jacked up the index, and then the final July 28 Panama judgment. In both cases the sell side players wrote positive commentaries, but eventually sanity prevailed, prices pruned (See BR Research column Camel at the PSX, published Sep 7, 2017).
With NAB reference against Dar and Sharifs, there is a risk that political noise will get so loud that it might increase Pakistan’s ranking in the noise pollution index. Surely that will not have a “lively” impact on the market.
Comments
Comments are closed.