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At the Pakistan Stock Exchange, January 2020 ended with a whimper. A mere 2 percent gain over preceding month’s close, which raises the question whether or not the winning streak that began in August 2019 onward is coming to an end.

On the surface there is a lot of optimism. Leading brokerage houses are still expecting CY20 to end at around 52,000, or about 27 percent higher. To many sell side players January’s slow move is more like a necessary breather after having gained a whopping 37 percent in the four months ending December 2019. But consider this.

Back in August 2019, the market had hit such severe lows from which point a springboard recovery was the only option. But now with the benchmark index at around 7.7x, equities aren’t offering as juicy returns as they did when they were at steep discounts while the index flirted with 28,000 points. (See BR Research’s Bears’ last mile or two!, Aug 6, 2019, & KSE-100 getting ready for take-off, Oct 8, 2019)

Back then, there were signs of macroeconomic stabilisation. Today, those signs are a little brighter; but only the balance-of-payment side of it. The fiscal side is still a big question, whereas policy actions aren’t visible on the governance side. Both Naya Pakistan Housing Project and the CPEC phase-II haven’t really kicked off; nor has there been an array of other sectoral policy drivers, whereas the government is also struggling with top appointments needed to lead the change.

These are all various pedigrees of apprehensions that don’t always weigh on the conscious mind, as do perhaps the ongoing earnings season. Invariably, they have a bearing on the market, especially at a time when investors are conscious of the IMF review scheduled to begin today onward; the FATF meet later this month; a tax shortfall that raises mini-budget concerns; and the central bank’s latest decision to hold interest rates easing on account of medium term inflationary pressures.

Meanwhile, bond yields have stopped breaking sharply. If animal spirits brought hunters to the equities when they were at dirt cheap price-to-earnings multiples, a lack of clarity over GDP growth outlook, and a preference for safety is keeping animal spirits at bay. It appears that interest rates will drive asset allocation decisions with a mix of equities and bonds in a situation that demands a delicate balancing act.

Granted, that some business confidence surveys have shown an uptick whereas the government is showcasing external account stability and rating improvements by international ratings agencies to peddle optimism. But positivity has its limits when the perceived chance of growth triggers across the broader economy are small.

Equities may remain above their August 2019 lows, but at a time when fiscal and monetary stimulus are nowhere in sight to kickstart growth, it may be foolhardy to expect equities to make substantial highs until macro management moves from stabilisation economics to growth economics.

For as long as the government remains stuck in transition economics, equities are likely to consolidate in a broad range with a downside 39,000 (37K at worst) and the upside of 44,000 (45.5K at most) points. Standing here today, growth economics does not appear on the horizon; not until budget FY21, which is why, at the risk of reiteration, CY20 may be the year of consolidation (Read BR Research’s KSE-100: the year of consolidation? Jan 16, 2020).