No surprises at the PSX

At the PSX, the story hasn’t changed. At the start of this month, this column said it expected the benchmark index to exhibit a range-bound, bear-dominated behaviour with short-lived upward spikes due to momentary lapse of reason. In that light, there hasn’t been any surprise since then.

Daily trading volume has thinned to an average of 53 million (KSE-100) as against 72-75 million in the preceding two months, and 92 million in August 2017. As for the index, the good thing is that the bottom has not fallen – neither on intra-day low basis, nor on close basis. At the same time, however, it has been unable to break through its recent highs – the highs of current movement are falling.

After bouncing back from its more-than-a-year low marked on October 31, the index’s gains this month so far have been limited to 41790 points – lower than its last recent high of 42087 hit on October 20, 2017. That isn’t exactly a sign of reversal, which is perhaps why the market at large has finally accepted that a rage-bound behaviour is here to stay for some time.

Writing at the end of last week, Elixir Securities said it expected political noise to take the driving seat next week.

“While Ex-PM Nawaz Sharif and his daughter have been awarded temporary exemption from appearing in the court cases, the statements from the Ex-First Family have continued to be retaliatory against the institutions. Adding fuel to fire, the sitting Finance Minister (FM) Ishaq Dar continues to be away from the country, despite issuance of non-bailable arrest warrants and risk of being declared absconder. In this backdrop, any news flow on FM’s potential resignation may actually be the positive trigger to look out for,” the brokerage wrote in its weekly roundup on November 17.

The next morning, the media reported that Ishaq Dar had resigned, but no sooner those reports were denied. This added to the political confusion and its negative repercussions on the economy. Still, unlike what the brokers say, Dar’s resignation wouldn’t necessarily have been a positive trigger, because it wouldn’t have meant the end of political uncertainty. It may well have been another twist in the drama.

There could, however, be a possible upside to Dar’s resignation: currency depreciation. Writing for brokerage Insight Securities, Zeeshan Afzal, said in his November 17 research note that his house believed that it would take political clarity (6-8 months), 10 percent currency depreciation and ease in BOP situation before MSCI Emerging Market funds start taking positions in Pakistan.

These views were based on their roadshows in the US and in Europe, where they noted that “Pakistan is practically in no man’s land” with global EM investors still comfortable with completely ignoring the country due to politics, the FX affair and looming concerns about the external account.

Earlier this year (July 2017), Zeeshan and his colleagues were unable “to find a single portfolio manager (in Europe) with clear bull stance over Pakistan for the next 12 months. At that time, most of the investors were confused over fate of Panama case, BoP conditions and awaited currency depreciation.”

That has precisely been this column’s stance without going to the roadshows! (See BR Research column: KSE100: Drama on two-way street, November 3, 2017). There is however, one key difference: the interest rate hike and the ensuing rise in bond yield could also cause weakness at the bourse. Which is why a “range-bound, bear-dominated behaviour” is the optimistic scenario for now, and if things worsen then be prepared to say hello to 36,000 points.