For some stock market players, the answer to that question is: yes. Or ‘cautiously optimistic’ as sell side players often say. The benchmark index’s rebound from its March-26 lows seems to have given them a confirmation. But this reading of the market seems to be tainted with confirmation bias.
Some stock market analysts have been publicly tweeting about Pakistan’s low number of Covid-19 cases so far, and low fatality rates relative to Europe, which in their opinion is a bullish indicator implying Pakistan’s exemption from any major corona crisis.
Given the extremely low number of tests in Pakistan relative to global average, such a reading is absurd. It reminds one of a strategy report by one of the leading brokerage houses some years ago. That report cited quarter-on-quarter decline in the number of terrorist bombings in Pakistan as the reason to be bullish on the market at a time when the intensity of those targets was getting serious. Soon after that report was released, there was an attack on the GHQ in Rawalpindi, following which the market naturally remained under pressure for a few months.
A similar bias reflects in their optimism over the drop in oil prices, which is expected to bode well for Pakistan’s imports. But one is hard pressed to find their estimates for exports at a time when Pakistan’s top exporting destinations are facing unprecedented crisis. Brokers’ risk thesis on remittances, FDI, privatisation and tax revenues are also not well deliberated. Broad brush stokes abound.
Ergo, leading equity brokerage houses currently in the process of revising their earnings estimates and target price of the companies under their coverage would do well to avoid such sell-side biases. They would also do well to present a detailed scenario-based analyses of their expectations about macroeconomy, and the listed companies. This should be accompanied by detailed sensitivity analyses to inform their clients, rather than simply giving December-end price targets. These are uncertain times, and it stands to reason that brokers should present a clear picture to their clients instead of providing them run of the mill strategy reports.
Granted that no one has monopoly on knowledge, and insights. And there are enough instances in recent history where the likes of IMF, World Bank, Moody’s, and ADB have been proven wrong. But when the World Bank expects Pakistan’s GDP to contract 1.3 percent in FY20 and barely grow (0.9%) in FY21; and when both independent economists (such as Noureil Roubini) and the IMF are expecting corona-driven global economic crisis to be at least worse than the Great Recession of yester decade, then local equity brokers ought to present their thesis in a detailed manner, especially if they hold contrarian views and are selling optimism.
As for the question whether or not the index has bottomed out, beware that the market has never liked uncertainty. Bad news is better than uncertainty. That mantra has been sold over and over again. Yet somehow the uncertainty surrounding the pandemic seems to have come to an end at the bourse. If worries of economic contraction at home, and if global fears of 1930’s like depression or a crisis worse than Great Recession are to materialise, then be sure that the benchmark PSX is far from the bottom.