The benchmark index finished broadly flat last year despite positive fundamentals and macroeconomic outlook. Two months into this year as well, investors are void of gains. In 2016 to date, the bourse appears to range-bound, refusing to go above 33,000 or below 30,500 points.
With local sentiment being largely positive on the equity market, foreign selling at the PSX (previously KSE) has been the suppressing element. The net selling position of overseas players in FY16 has reached $330 million. This eight-month stretch of FIPI sell offs is a result of deterioration in global growth outlook and the oil price slump; an average investor is more risk averse today compared to the same time last year. Also, sovereign funds of oil producing countries have been selling liquid assets (including equities) to keep the fiscal deficit in check. This has hurt the local market as well.
The appreciation in oil prices of late can prove to be beneficial for the stock market firstly because oil and gas sector constitutes a big chunk of the market. Secondly, if Brent moves its way up to $40s and stays there, it will curb the selling activity from sovereign funds and PSX might break out from this rather long range-bound period and begin a journey upwards. Then again, its oil prices we are talking about here and it is impossible to accurately predict its movements.
Disregarding the foreign influences on the bourse, the fundamentals are mostly positive for the market to rally. With CPEC backed to lift the country's economic prospects and PSX lobbying to win back the emerging market status, shares are bound to become pricier.
Also, the current valuations are incredibly cheap when compared to regional markets. Combine all this and the picture becomes all the more rosier. So much so that the sell-side analysts are expecting KSE-100 index to close the year at 38,000-38,500 points in consensus; some are even targeting the 40,000-mark.
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