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The only thing growing at Pakistan Stock Exchange these days is boredom in trading pits. Traders have little done to keep busy. Volumes are dry and growing thin by the day as the benchmark index KSE-100 remains caught in a tight range since recovering from its sharp fall in December 2017. On the face of it, there are a host of factors behind such weak-to-range bound behaviour. Pakistan-US relations aren’t sanguine and that can affect Pakistan’s likely IMF programme. Which leads to the second reason why the market is acting dicey: investors are not sure whether the new government will in fact go to the IMF or not.

Third, brokerage houses report that market players are waiting for the PTI to finally announce the much-awaited overall economic direction; hence the uncertainty and lack of activity. That direction is expected to be announced anytime in the second half of this month. Fourth, core inflation is rising and so is the secondary market 10-year PIB yield; the latter doesn’t bode well for the equities as is evidenced in the graph.

Fifth, some fear capital flight in the wake of a host of certain developments. These include the PM’s strict stated position on corruption and foul source of money; it also includes SECP’s demands to provide data of all politically exposed persons as well as the demand from companies to maintain up-to-date information relating to their ultimate beneficial owners, i.e. natural persons who ultimately own or control the company.

Capital markets work by price-in the future risks and opportunities (weighed against each other) in the present value. It could be said therefore that all things considered, ultimately the market has not given its vote of confidence to PM Khan as yet, despite the inroads made by business-friendly technocratic set-up in the cabinet and in the EAC. Recall that the market had given the PML-N a vote of confidence a month before even it took office in 2013.

Granted that the results of 2018 general elections were not as expected as the results of 2013 elections. But it has been more than a month since the elections now, and about a week since the EAC was announced, the names of whose members had been circulating for a long time anyways. Clearly it is not just the uncertainty over whether or not Pakistan will go to the IMF that is driving the market wary. If anything, there is growing clarity that Pakistan will go to the IMF.

For one, FinMin Asad Umar had clearly said that the IMF is one of the options; he had not tossed it away from the table. Second, gas and electricity price hikes are on the cards; an unpopular move for a new government but that is what the IMF would want. Third, the PM, as reported in this newspaper yesterday, has tasked a committee to review privatisation (an IMF-flattering move), which runs contrary to the Khazana Model the PTI had touted in its election campaign. Reportedly, the committee is given the same Terms of Reference as was given by former PM Nawaz Sharif when he took office in 2013. These developments signal that an IMF programme may be on the cards.

Meanwhile, the high net worth individuals and insurance companies have been consistent buyers at the bourse lately. Which is also why, the index has been making higher bottoms and lower highs, where trading volume reduces even more when the market is negative, implying positive underlying sentiments. Does this mean that the smart money knows what others know not?

Copyright Business Recorder, 2018

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