AKD Securities called it jumping the gun; KASB Securities said it was not something they expected, while InvestCap said it was unjustified at least this time around. Yet, despite the central banks rate hike, KSE equities didn witness a knee-jerk reaction last week.
The benchmark KSEs flat movement after the rate hike, which came amid a 15 basis points increase in the benchmark government bond yields, demonstrates investors cluelessness as regards the direction of the market.
In fact, Fridays close near its key level of 10100 points, backed by relatively better trading volume, might even convince some that the market will finally show a northbound breakout. After all, having undergone perhaps the longest period of broad-range consolidation in many years (see graph), and after having calmly consumed an array of bad news, a breakout should be seen anytime soon.
But a breakout needs a trigger, and that trigger isn seen coming from the economic front anytime soon. Those who disagree with the view should read the just-released monetary policy statement once again. Even the margin trading hopefuls should be wary of the central banks hawkish stance.
Could a trigger, therefore, come from the political front? Possibly yes. It appears that it is not just the public that is tired of governance-mismanagement; the central bank was also vocal about it in its statement. And so have been Pakistans debt/aid providers.
A change of regime may just be on the cards - something which the smart money (read: KSEs net buyers CY to-date, foreign investors) has perhaps been expecting for the past many months, and hence has chosen to stay in the market despite all the winds of negatively-charged uncertainty.
This may seem like far-fetched imagination. But in the absence of any economic rationale, a change in the political regime, which in turn might result in better economic management, is the only hope the bullish folks have at the moment.
If these hopes materialise, the index might rally up to 11,500~12,200 points, most likely in a rapid burst. But thats as far as it can go, given the absence of healthy positive economic developments and the lack of momentum, which is loud and visible even as you read this note.
Even if a positive political development jacks up prices, it would be a good self-reminder that no government has a magical wand and that Pakistans economic problems do not have quick-fix solutions.
Ironically, an increase in momentum (i.e. more liquidity; more turnover) can also backfire since it would result in better price discovery - giving a jolt to those who have cornered the index heavy weight stocks.
In short, its better to rationalise prices gradually, beginning as soon as possible, than to reach a tipping point which can potentially result in a crash-course adjustment of prices. Very few can be certain about the length of KSE-100s present range-bound behaviour, and those who are have a lot of nerves.