Greed and fear are the yin and yang of stock market that often move in tandem one step after each other. Lately it seems, however, that bouts of anxiety exist no more. The market is bellowing like a bull as if nothing is to disturb its uproar. That appears to be the reading from the trading pits of Pakistan Stock Exchange last week. But how long might this last?
There is no doubt that with the virus easing in Pakistan on account of inexplicable reasons, optimism has multiplied at the trading floor. Then again, save for the sharp drop in late March 20, which is largely attributed to regional and global corona-led weakness, the KSE-100 has actually been faring rather well – paying little heed to growing number of daily cases or deaths in Pakistan.
The benchmark index did slip between June 11-19 2020. But back then, brokers attributed that slip to federal budget related worries and the government’s decision for smart lockdown. Interestingly though, the market soon sprang back in alignment with the (to-date) peak of the Covid-19 cases/ deaths in Pakistan.
In BR Research’s stock coverage on Friday before last, it was reported that traders were upbeat about the market but that the rise and rise of small stocks is a reason for caution. But whether the trend is strong enough to immediately break on through to other side of 36,500-37,500 points, or will the market take a breather, correct itself and then attempt to cross these levels again? The answer was to reveal itself Friday before last, July 10 piece noted. (See also Reading PSX pulse Jul 10, 2020)
And reveal it did by trading in a narrow range in somewhat choppy trade but eventually closing positive, enabling a further 3 percent growth with 18 percent growth in trading volumes in the following (outgoing) week.
With the index closing at 37,330 points last week, the market has finally crossed the 500-daily moving average and the momentum looks all set for the index to eye 39000-40000 points before taking a breather. The rally may continue on the back of banking stocks, given that their relative performance since March 2020 and Aug 2019 still offers room for growth that investors have begun to eye over the course of trade last week.
At current levels, there are enough reasons to be optimistic about the market, some of which were discussed earlier in this space. However, investors would do well to keep at least one eye on Covid-19 trends. (See ‘KSE-100: new year, new opportunities, old problems’ Jul 6, 2020)
The virus may be waning in Pakistan but beware of the second wave, especially if SOPs are violated at the upcoming Eid - it is not as if that health experts in Pakistan are sure of what has led to a fall in corona cases/fatalities and what would they need to replicate if these start rising again. Prudence, therefore, might demand to stay a little more liquid for a little longer to be able to take advantage, if the virus strikes equity prices again.