Historic low earnings multiples have not been enough to overturn the fortunes at the Pakistan Stock Exchange’s benchmark KSE-100 index. It does not help that multiyear low multiples coincide with multiyear (if not all-time) low confidence in the economy, political stability, and even the country as a whole. In fact, one would not be entirely wrong in saying that the bourse has outdone itself –given the dire straits Pakistan finds itself in.

The drop so far has not been spectacular but steady. After the customary January increase – the index has come down 2 percent from the start of 2023 and is down 9 percent from a year ago. Business and consumer confidence indices have repeatedly shown negative trends, inflation has breached a 50-year high, reserves are razor thin, and the interest rates may not have peaked yet.

What could the KSE-100 possibly look out for in these times to change direction? Relative calm on political front would be a great starter, but with every passing day, that appears more distant than the previous day. While political uncertainty may have lessened from a month ago, as it is almost certain that elections will not happen, and the current setup may continue well beyond its limit – this will invariably invite more trouble on the streets for the rest of 2023.

The IMF deal that appeared locked a month ago, now seems farther than ever before. An IMF deal will still bring about a sense of calm and even a short bull run – but the downsides are more entrenched. No IMF means the worst fears could materialize. All bets are off in that case. But even an IMF deal cannot possibly reverse the plight of both businesses and consumers. The LSM growth has started to tell a horrid tale, and inflation may not have peaked yet.

Of late, the secondary market yields have started to look inverted, which is a rare occurrence anywhere in the world. More often than not, inversion of yield curve has been viewed as a precursor to recession. Interestingly, in the last two global recessions, stock markets had a bull run leading to that point while the yield curves stayed inverted. The KSE-100 index too has had a long-standing firm relationship with 10-year market yields, which have softened of late, as short-term yield, go up. There could still be a bull run in that context – but that is most likely to fade sooner than later, as all fundamentals point towards more struggle – both on economic and political fronts.