For an Average Joe Investor, this past week must have been one forgettable traumatic experience. Seeing the value of the stock you own plunge this fast and this steep, and as a consequence your holdings dwindling by a stupendous margin, is indeed shocking for anybody. But for an Average Joe Investor, with hard-earned dough invested from savings that involved scrimping on so much, this is all the more difficult to digest.
The trigger for this abrupt and precipitous fall was the downgrading of the United States’ credit status from ‘Triple A’ to ‘Double A-plus’ by Standard and Poor’s rating agency, the first time since 1917. It prompted a domino-like response eastwards, with Europe and the Far East’s major bourses following suit. With Karachi in the throes of political upheaval, the discouraging law and order situation across the country, with endemic energy shortages to boot, the KSE and other exchanges were bound to take a hit. But the real clincher, the decisive blow, pulling the market down was foreign investors dumping their holdings in a huge rush.
The Pakistani institutions tried to substitute that with mopping up some of the divested stock at cheaper prices, and that did produce some sort of a rally on Monday with a 29 point recovery, but the money pumped in was not a match to what foreign funds had taken out. And it meant another nosedive on Tuesday of 370 points – the most precipitate fall after last Friday’s whopping 471 points. By then in all the market had lost 1,220 points – plummeting from 12,253 on Aug. 2 to 11,034 on Aug. 9. This was seismic, blowing away 13 per cent and reminding those who had been through an even bigger trough in 2008 of how bad it could get.
But when Dow Jones and the European markets recovered Tuesday, and the big bourses in the Far East responded positively, the KSE too thrived, recovering 292 points.
Is this recovery sustainable, is the question? My broker at Lahore Stock Exchange, MND is quite optimistic. His optimism stems from the premise that, one, the Pakistani stocks are undervalued and this latest erosion has turned them into really good buys that investors are going to appreciate. Second, according to him, the timing of this latest depression preceding the board meetings of the June-closing and half-yearly dividend giving companies means that buyer interest would abide, thus pulling the market back to where it was prior to the fall – well above 12,000 points or even higher.
Another market analyst of repute, Ali Malik of First National Equities didn’t share MND’s upbeat assessment. His premise: since the market is quite dependent on foreign investors remaining committed, and given the turmoil in the US economy and markets it was highly unlikely that they would, hence our bourses would remain in volatile territory. In support of his argument, he mentioned that a pullout of $7.6 million on Tuesday meant a three per cent decline. “And one need not forget that owing to political unrest at the moment local investors too are shy”, said Ali Malik.
With regards to good buys, a tip from Malik: “Fertilizer companies are thriving; the profitability is high, and there would be capital gain. So go for any one of them.”
When there is uncertainty and upheaval, another question that an Average Joe Investor will be seeking an answer to is: what to do when he is stuck in such a situation, how to keep his wits about when all around him are losing their nerves and hitting the sell button in frenzied panic?
The temptation to jump the ship and preserve whatever is left is always there. But if you have somehow not been able to read the situation before hand, and not sold before the fall has set in, don’t do it now. Hang in there and wait, and if you invested in the right companies – the ones that give dividend like clock work and also lavish bonus shares on their investors – this will be worth your while. The markets will eventually recover and you would likely recoup your losses. After all the obverse of what goes up will come down too is true.
The writer is Sports and Magazines Editor, Pakistan Today
A blow to the solar plexus
