Camel at the PSX

The benchmark PSX index seems to be slowly inching towards 39000 points. The gains posted on the first day after Eid made many wonder whether the bearish spell is over. But yesterday’s drop suggests far from it.

The key to watch, however, is the volumes. Shrinking volumes! That is a major sign of indecisiveness on either direction. When the market started slipping from more than 47000 points in early August, the volumes were initially decent, averaging about 116 million a day until August 10. Since then daily trade volume has simply kept on thinning. Yesterday was no different with a mere 76 million trade.

This suggests that while bulls may be weak, the bears are also losing steam. At this rate, the index may well correct itself towards 39000, as this column has been flagging since more than four weeks. (See also BR Research column ‘Time for statues at the PSX’ published Aug 24, 2017). But it may not necessarily correct any further from that. Instead, a period of consolidation might ensue.

Here are a few reasons why the market is performing the way it is right now. The broader outlook is weak, domestic politics (NAB and what not), weakness in regional and international diplomacy (Trump’s aggressive stance, and China’s sign-off to BRICS statement about terrorists in Pakistan). However, news flow on the former has slowed down for now; whereas notions of how exactly the latter would affect Pakistan’s economy is not very clear at this moment.

Au contraire, the corporate results so far have been fairly positive. Additionally, there are signs that interest rates will be jacked up in the ensuing six months, which will be good for banks that have more than 22 percent weight in the overall index.

News from the second biggest weighted sector – E&P – is also neutral if not positive given North Korea’s antics. Talk of approaching the IMF yet again – perhaps in the caretaker setup before the elections – have also surfaced. That would be a shame for the country, but the market would like it since IMF does bring macro stability in the short to medium term, even though long term consequences are oft detrimental.

Meanwhile, sources in the PSX say that the Chinese management is gearing up to connect Chinese investors to the PSX. Sources say the plan is to get that channel working by this time next year. If indeed that happens by that time then stock values may shoot through the roof since the Chinese are known to play the market like a casino.

But all this rosy future hangs in a balance; for much depends on how and where the camel will sit in so far the PML-N saga is concerned, and its consequences on the upcoming elections. Hence, thinning volumes and uncertainty! On that note, Pakistan should also have statue of a camel trying to sit in front of the PSX – signifying the uncertainty that oft marks the market.