Mr Market’s periscope

Mr Market knows best, goes the old saying, so perhaps its best to look at the wild swings at the stock exchange to make some sense of what is in store for “we, the people” as the latest slugfest between the political elite about who stole whose mandate makes judges controversial and lawyers rich all over again. Luckily, Mr Market does not give a toss about who is right and who is wrong, or if one that happily accepted establishment largesse last time is justifiably angry that others who have done it before might have done it again, etc.

The market only cares about one thing; whether there is certainty or uncertainty going forward. And, as every trader who’s lost money on the floor will tell you, it hates nothing more than uncertainty, not even bad news. So, while I’m sure it’s very important to respect the “people’s mandate” in a land where it’s never ever been respected and all that, I’m not going to sit on my hands and wait for a miracle.

I’m more concerned about whether the market’s return to from on Wednesday marked a continuation of the epic bull run that was triggered by the Stand-By Arrangement (SBA) around end-June, which has been caught in a trading range since end-Dec, or if it was just a bottom-fishing-driven breather as PTI’s crusade for its “stolen” landslide moves ahead.

PTI is clearly in no mood to talk to any party it can easily form a coalition government with, unless it takes yet another trademark U-turn of course, so near-term market volatility seems directly tied to other parties’ ability to move enough pieces on the board to form something resembling a workable administration over the next few days. If that’s done, which seems more possible today than yesterday, then, ceteris paribus, the market should resume the upswing, perhaps touching or even breaking the Dec13 high. Then the next stop will be the next IMF programme sometime in April.

Everybody knows it’s unavoidable, otherwise the country will tumble head-first into sovereign default. Everybody also knows that IMF’s usual statements about the need for a “representative government” that enjoys “the support of the people” notwithstanding, it will happily negotiate with whichever government is in power at that time. And everybody knows that the administration – whether a vindicated PTI or a hotchpotch coalition – will duly implement all “upfront conditions”, however harsh, especially after repeated breakdowns in the EFF (Extended Fund Facility) in the time of PTI and PDM.

Plus, with SIFC (Special Investment Facilitation Council) firmly entrenched, making progress and, more importantly, ensuring strict compliance with all the Fund’s conditions, there’s little chance of the finance ministry going off-script after signing on the programme. And since inflation is plateauing and interest rates peaking, a further spike in market and manufacturing activity is also on the cards, especially if prices drop enough to trigger a dovish shift at the state bank.

But all that is still the lesser evil from the people’s point of view.

An IMF programme will stabilise the economy, but the lender’s penchant for more taxes and less subsidies will further drive up commodity and utility prices and stoke cost-push inflation. Nobody will like that, of course, but they’ll still like it more than the scenario that sees more confrontation and chaos, no IMF programme, another crisis of confidence in the economy and yet another exchange rate collapse that ensures hyperinflation and far worse unemployment.

So, as the market raises its periscope from under the turbulence of the election, does it see a manner of calm returning even as PTI “fights for justice” and PPP carves a clever way forward by nudging PML-N into accepting the crown of thorns? It’s cruel, ice-cold logic dictates that the upturn will sustain if certainty returns, which will come once the new government is installed, even if it’s made up of people who allegedly “stole the mandate of the people”.

Copyright Business Recorder, 2024