Pakistan’s stock market seems to be responding positively to the ousting of Nawaz Sharif from PM office. Not only did it recover from its steep intra-day losses last Friday when the judgement was announced, it continued its gains yesterday as well.
One would have been tempted to say that market pundits are only responding to the ‘end of uncertainty’ – as some players argue – instead of the disqualification of Nawaz Sharif. That view may hold some truth but it doesn’t hold a lot of ground in the face of various Whatsapp videos, showing a rare display of ‘bhangras’ at the PSX floor on Friday amid slogans of #GoNawazGo, and ‘judges zindabad’.
As for the ‘end of uncertainty’ argument, this column would advise investors to think twice before joining the bullish bandwagon jump started by the punters.
Remember how the stock market reacted jubilantly right after the April 20th Supreme Court order when it decided to form a joint investigation team. By May 24th the punters took the market to new life high (52876 points), but eventually slipping to 43783 points by July 13th. That close was just days after the JIT had submitted the report, and about 10 percent lower from the close on April 20th. How many fingers got burned? Plenty!
A similar episode might follow suit if investors throw caution to the wind. While economic policies may continue until the next elections, political uncertainty may also continue in the months ahead. That political uncertainty doesn’t only stem from the possible conviction of Nawaz Sharif after NAB’s trial; it also stems from what lies ahead for Ishaq Dar and Shahbaz Sharif; the Hudaibiya case is said to be a can of worms, and worms are also known to eat men. Agreed, that the cases will take much longer than the Panama case, but uncertainty sees the news flow and likelihoods.
A host of possibilities exist out there; some with only Nawaz in Adiala, some both Sharif brothers in; some with none. Each might have different political implications for the next elections. How does the market read PML-N’s future without the Sharif brothers, or with one of them in Adiala, or with both of them back in the game?
The market hasn’t really thought through these possible developments. But a clearer picture on these possible scenarios will eventually emerge during the accountability courts’ proceedings. Until that time, smart investors should refrain jumping the bullish bandwagon and opt for cherry pick at lower levels instead.
What are the lower levels? Well, Qasim Anwar, Pakistan’s first certified chartist working at AKD Securities says he expects the market to consolidate (marked by accumulation) between 44000 and 47600 points; his current downside expectation being limited 44000 points. But BR Research’s view is that, don’t be surprised if the index slips to 39000 (or even 36000 points in extreme political circumstances); political wrangling often wakes up the bears. And bears often wake up hungry!