End of political uncertainties to bring about stock market rally: analysts

The stock market investors expect a rally at the Karachi bourse when the uncertainties on the political front are over, analysts said. The stock market players and investors will keenly follow developments on the political front, they added.
"We expect political noise to remain high in the coming few weeks, and the tug of war between the political players would create a wave of uneasiness at the local bourses", Muhammad Sohail, a leading analyst, said. The Supreme Court of Pakistan has issued orders asking Pakistan's Prime Minister to appear before a panel of judges on January 19.
This contempt of court notice has been given on failure to reopen cases against President Zardari and others, previously set aside under the infamous National Reconciliation Ordinance (NRO), he said. Sohail said that these developments are adding more uncertainties in the local political scene and making life difficult for fund managers investing in Pakistan stocks. "However, we believe that it looks like last few episodes of a high profile drama that would eventually lead to early elections, somewhere in the second half of calendar year 2012", he said.
He said he believes that once the path to early elections is clear the local equities, that are trading at forward PE of 5.7x and dividend yield of 9 percent, could rally. However, it would take some time before the drama ends and clarity occurs on the timing of the much-awaited general elections, he added.
According to him, signs of early election are becoming clearer. He said that the PPP government's five-year term would end in the first quarter of 2013. Pakistan's general elections are not scheduled to take place until early 2013, as per normal routine. However, major rallies by opposition parties, PML-N and PTI, in recent days, the 'Memogate Scandal', NRO hearing coupled with the subsequent events signal signs of early elections in 2012, Sohail said.
In fact, in one of the interviews, President Zardari had also hinted at early elections. However, there are questions regarding 'independent' Election Commission, and an acceptable caretaker Prime Minister to both the ruling and the opposition parties, he said.
"With Senate elections due on March 2, 2012, the present government would try to buy time as the present electoral composition would allow the government to become largest party in the Upper House", he said. In this regard, the PM's appearance in the court could be used as a delaying tactic with either PM accepting his mistake and making commitment to open the cases, or refuse to write to Swiss authorities under the ambit of Presidential immunity, he added.
"Where the former probability is low, it will automatically buy time for the government, while the latter could result in the PM's disqualification, resulting in change of the PM", he said. "Even in this scenario, the government would get time to secure its position in the upper house", he added.
"Beyond the point, we believe there would be overall consensus of early elections by both the government and the opposition", he said, adding that the market would rally if independent caretaker government is appointed with consensus to supervise elections in 2012.
Sohail said that investors would cheer any announcement of early change in the government, considering that the 4 years of PPP government had brought average GDP growth of 2.9 percent only, and average yearly inflation of 14.6 percent in the said period.
"Looking at the past trend, stocks have rallied by 9 percent and 12 percent on an average 3 months and 1 month before the elections", he said. "And this time also, we expect share value to react positively", he added.