Uncertainty on political front after the announcement of 'Azadi March' in Islamabad by opposition parties could affect the market sentiment, forcing investors to take a back seat until the fervour dies down and clarity emerges, analysts said. "Broadly speaking, if this political protest gets traction, the already precarious economic position of the country is expected to suffer the shock, which will be detrimental given the slowdown being experienced currently", Muhammad Sohail, senior analyst and CEO of Topline Securities said, adding that a clear example would be the delay in arrival of the Chinese President Xi Jinping for the signing of the CPEC.
Pertinent to note is that this event is expected to clash with the arrival of the IMF review team due at the end of the month, he said. Pakistan is under a $6 billion IMF EFF signed on July 03, 2019. An IMF team is expected to review first quarter economic performance to ensure smooth progress of its plan.
Moreover, Pakistan is at a crucial stage where to build up its foreign exchange reserves the government is planning to hold road shows to raise money through Eurobond and Dollar sukuk, such protest may adversely affect that deal.
Generally, investors tend to panic in an uncertain political situation as the government focuses towards resolution of the crisis, which consequently slows down the economic decision making, he said adding that uncertainty dampens investor confidence which translates into a negative market performance.
Considering Pakistan's history, investors remain cautious as such political agitation may give rise to violence and can create law and order issues. In the worst case scenario, investors also consider the repercussion in case such political protest eventually results into any sort of government change or military takeover that may again affect investor's confidence.
A similar kind of opposition protest sit-in happened during 2014, the market went down by close to 5 percent in 14 trading sessions to hit bottom after announcement of joint strategy by Pakistan Tehreek Insaaf (PTI) and Pakistan Awami Tehreek (PAT) on August 10, 2014. To note, panic selling was witnessed on August 11, 2014 when the index fell 4 percent in a single session.
Interestingly, as the sit-in started to lose its momentum, the market witnessed some recovery and gained 10 percent after making a bottom of 27,774. Finally, after the end of 127-day long protest (December 17, 2014), the KSE-100 index rallied further by 5 percent till the end of 2014 and closed around 32,131 points level. "Based on historic trend, we expect the market to follow similar volatility, where the investors may take a back seat until the fervor dies down and clarity emerges," he said.
Copyright Business Recorder, 2019
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