Daily Times

Karachi: Interestingly, the single appearance of Prime Minister Nawaz Sharif before the Joint Investigation Team JIT cost the Pakistan stock market, in terms of decline, equal to PTI’s four month long sit-in and protests.

The market has fallen by 9 percent since the summon issued by JIT and obeyed by the Prime Minister, Pakistan’s capital market in response to PTI’s protest against election rigging and protest, staged from 14 August 2014 to 17 December 2014 in the federal capital, had also declined by 9 percent.

Pakistan equities have witnessed one of the largest corrections; the KSE-100 Index has fallen 15% from its peak level of 52,876 points on May 24, over the past 19 trading sessions excluding Friday. Since the much hyped about MSCI rebalancing on May 31, the market has fallen 11%, and since the Prime Minister was summoned by the Joint Investigation Team (JIT), the market has fallen by 9%, a report by Topline Securities said.

Over the past 12 years, Pakistan’s capital market has fallen 10% or greater on 12 occasions. Excluding the infamous crashes of 2008 (47% fall) and 2005 derivatives/badla crisis (36%), on an average the market recovered in around 6 weeks after bottoming out.

The highest fall since the 2008 crash was seen in early 2015 when the index fell 17% due to foreign selling. Contrary to expectations, during the public protest in Pakistan’s capital by the PTI political party which lasted during Aug-Dec’14, at the worst, the market declined 9%.

“We believe, since the recent fall is likely due to uncertainty surrounding the JIT probe against Prime Minister’s family, it is highly unlikely that the market will recover in line with past trends when there was no political and economic uncertainty. We are of the view that until the JIT’s final report and subsequent decision by the Supreme Court, the market will likely remain subdued. However, an early resolution would be amicable for all stakeholders, as in fact uncertainty is worse than the event itself”, analysts at Topline Securities believed.

Some participants may be wary that while the incumbent govt. may be caught up in all the court proceedings & investigation, their focus towards economic & policy matters may lax, which may in turn impact the business climate. This is a key cause of concern lingering in the back of investors minds’ and leading to this sharp selloff, the analysts said.

Continuation of uncertainty would potentially result in possible deterioration of macros given the already weak external account situation. Unfavorable external account data has also been raising concern on the Pak Rupee. This is because of sharp rise in current account deficit (CAD) that current account deficit has widened to $8.9 billion in the period of July 2016 to May 2017 as compared to $3.2 billion deficit recorded during the same period of the last fiscal year, FY16.

Other than the negative impact on the macroeconomic outlook, sector and company outlook may also suffer as policy inaction could potentially result in delay or suspension of additional investment plans, which then may negatively impact earnings growth estimates, analysts warned. During the current week the market bounced back from CYTD low of 44,914 points hit on Tuesday, with investors buying into the trough being rewarded by week’s end, KSE-100 closed at 46,332 points. Apart from developments concerning proceedings of the Panama case in the SC, news flows impacting markets were net foreign direct investment surged by 22.6%YoY to $2.03 billion during 11MFY17, with China taking the top spot investing $878 million, textile and clothing exports declined by 1.98%YoY to $11.23 billion for 11MFY17, reportedly, Ministry of Industries and Production has allowed KIA-Lucky Motors Pakistan Ltd, Nishat Group and United Motors Pvt Ltd to setup plants for assembling of vehicles under incentives afforded to Greenfield investments with the three committing to total outlay of $372 million, reported AKD Securities.

Average daily volumes were up 8% WoW, while traded value rose 21% to $124 million. On the sector front, Power and Textiles gained 1-2% WoW, while Autos Assemblers shed 4%, Auto parts & Pharma shed 3%, E&P’s and Banks shed 1% WoW .

Banks (+$10.6 million) bought the most while foreigners bought $9.2 million during the week as against selling of $9.5 million last week; buying was concentrated in Banks ($3.2 million), Fertilizer ($3 million) and Food ($1.2 million), while foreigners sold $2.2 million of Power.

Despite the pullback witnessed in the last days of the week, the political cloud of Panama proceedings continue to permeate investor sentiment. Consequently, two day trading week ahead is expected to be a pit stop, with no major moves expected. Next stop is the June-end result season, with investors aligning portfolios to expectations on earnings and payouts accordingly, analysts viewed.

Published in Daily Times, June 24th, 2017.