The Pakistan Stock Exchange made quite a few headlines last month despite just 15 trading sessions. “Unprecedented” and “highest-ever” were the adjectives for the month. While these are often misused adjectives, they didn’t quite seem out of place for few of the last month’s happening. It is not every other day that you see 2.2 billion shares changing hands in a single day. That sure was “unprecedented”.
The benchmark KSE-100 index, also rather unknowingly went on to yield 8 percent return in 15 trading sessions, having returned negative yields for past three months. The index sat on a 4-year high, which brought jubilant ministers and supporters of the government on Twitter, using this as yet another sign of an economy on the right track. Not too sure about the 100-index volumes being so much of a sign, but it is fair to point out an index at a 4-year high.
On the index volume, while some would brush it aside as chip change stocks, it would not hurt recalling the very penny stocks used to be around the left, right and center of the oft-eulogized glorious days of mid 2000s. And while the absolute volume of the all-share index is mind boggling, it did not arrive without warnings. There had been at least seven to eight attempts at multiyear high all-share volumes in the last six months. Whether or not the volumes will find a new base will soon be known, but unchartered waters have now been visited, and that usually means more visits to or thereabouts.
If history is any guide, Pakistan seems to have ridden the third Covid wave rather well, having likely seen the peak at the start of April 2021. For most part of the last 12 months, the KSE-100 index has respected the Covid curve – moving in tandem with number of daily cases. As vaccination drive picks up pace, one could pin high hopes on the third wave being the last one. The bulls should now be honing the horns – who have not really had a long uninterrupted stretch for one reason or another.
The KSE-100 index is trading at 21 percent premium to 500 day-moving-average, which is the average premium for the last ten years. This does not necessarily mean that the upside is limited, because 2020 Covid dip was undoubtedly a once-in-a-lifetime event. You can’t really predict extremities, but 2020 was the first global catastrophe since 2008 financial crisis. So, if all goes as per “trend”, the 100-index premium should rise from the current levels, leveling out the “corona quarter” drop.
With the central bank’s forward guidance as the new tool in town, the market players could draw more certainty in terms of policy rate direction. While the chances of an immediate rate hike remain slim, an increase in policy rate is still closer today than it was two, four or six months ago. The new finance team in Islamabad is not overly fond of rate hikes. Time will tell if this has a bearing on how the central bank sees the MPS variables. This is important because the KSE-100 has an ironclad, long-lasting relationship with 10-year sovereign paper yield.
Bear in mind why the bulls really did not run with the show is that the index heavyweights have not really been the top performers. Technology is the runaway winner, outperforming the index and all other sectors by a wide margin. The other two key sectors have been cement, and automobile – both of which have demand directly linked with the interest rates. Other sectors have not joined the rally yet. Pre-budget jitters may still keep the bulls waiting. But once out, they may be out for a longer run this time.