Stock market is an interesting beast with so many variables and forces at play impacting the poor old KSE 100 index. Pakistan stock market (PSX) with return of 38.5% in dollar terms has been the best performing stock market in Asia. PSX is interesting since its daily cap limits the losses and gains for the investor which is crucial for a country like Pakistan where cartels and groupism have been taking a toll on the Govt of Pakistan (Sugar , Wheat , Cement etc.) .From Jan 1 2020 – Oct 3 2020 PSX had an activity of around 18.5b$ compared 9.5B$ for the same period last year. Market has almost doubled in size in terms of money movement.

Investment portfolio of PSX are divided in to foreign and local portfolio and local portfolio is further divided into companies, brokers, insurance, Banks, Mutual funds, other organization, individuals and NBFC. Foreign Investment portfolio comprises of foreign corporates and over sees Pakistan. Foreign corporates market share has been on a constant decline while oversees Market share has been on a steady rise in the last two years.

Mutual funds influence the market more than you think. Mutual funds having a market share of only 3.59% (oct 2 ,2020) did a total activity of around 1608 million $, which is the third highest activity outperformed only by Brokers and individuals which have around 14.78 % and 64.32% of market share. Things get more interesting when we analyze Activity in million $ per market share%. Mutual funds had an activity of 448 million $ per market share % which is third highest. NBFC as expected top in market influence per market share and is followed by companies only. There is no surprise that NBFC has the highest activity per market share considering their core operation is to trade in securities.

Figure 1 Shows NBFC, Companies and mutual funds are top 3 in terms of Activity / Market share.

But there is more that meets to the eye especially in mutual funds. KSE 100 has one noticeable dip on March 24 till 27,228 point and mutual funds role in this cannot be completely ignored. Mutual funds role is more relevant when volume drops in the index. mutual funds were net buyers in the first two weeks of March 2020 and later they became net sellers till the end of march. It can be related to quarter closure and boosting cash reserves. In Sep 2020, as the volume rose in the market mutual funds were net buyers from 1 September – 18 September 2020 (net 18.77 Million $ buying). From 21 September – 2 October mutual funds were net sellers by 28.15 million $ .

Figure 2 PSX 100 index YTD

Mutual funds have been very smart in dealing with the market situation, it is seen when volume was low in Q3 End, mutual funds invested aggressively in cement sector before taking it out in the last two weeks of march. Similar thing can be seen in Q1 21 as well in which massive buying in the first two weeks of September is outnumbered by selling in the last two weeks. Mutual funds having that cash authority clearly gives market a boost and positive sentiment is created. as more investors join in on the tide mutual funds use this opportunity to liquidate the assets at a reasonable rate to create a return for the investors. Individuals on the other hand show a complete opposite behavior in cement sector.

Figure 3 LIPI cement stocks by net value Mutual funds

Figure 4 LIPI Cement stocks by net value individuals

Mutual funds are not the villain but just smart investors who see the opportunity and are going by the rule of keeping it simple. You buy when market goes up and has volume and you sell when market doesn’t have volume or is index is going down. The common investor needs to investigate this trend before blaming political instability of speculations on WHY PSX behaves the way it has. there are so many underlying themes at play in PSX its very difficult for any one to pinpoint as a root cause. But since our politicians somehow corelate PSX with the economy’s health there is always a huge debate when the index falls but the facts is index is always cyclic , it falls and it rises again , people who work out these tides make good money and those who don’t may lose some. Shehbaz Sharif going to jail is certainly not the root cause of the September meltdown. However none of this really matters as Warren buffet puts it :

“Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard.”

So keep on reviewing the EPS , the matchsticks , the gut feelings and keep playing the best performing stock market in Asia.