Political developments, like Supreme Court’s recent contempt of court order to the prime minister, are making life difficult for fund managers investing in Pakistan stocks, observed analysts. This contempt of court has been given on failure to reopen cases against President Zardari and others, previously set aside under the infamous National Reconciliation Ordinance (NRO).
“These developments are adding more uncertainties in the local political scene and making life difficult for fund managers investing in Pakistani stocks,” said Mohammed Sohail, chief executive officer of Topline Securities.
However, the analyst said, he believed that it looked akin to the last few episodes of a high profile drama that would eventually lead into early election somewhere in second half of calendar year 2012. And once the path to early election is clear the local equities that are trading at forward PE of 5.7x and dividend yield of nine per cent could rally, we believe. However, it will take some time before the drama ends and clarity occurs on the timing of the much-awaited general elections.
PPP government’s five year term will end in 1Q2013. Pakistan’s general elections are not scheduled to take place until early 2013 as per the normal routine.
However, major rallies by opposition party PML-N and the former cricketer at the helm of PTI in recent days, ‘Memogate Scandal’, NRO hearing coupled with their subsequent events signal signs of early election in 2012.
All leading newspapers and TV channels are also hinting at the possibility of elections in 2012. In fact in one of the interviews, President Zardari has also hinted at early election. However, there are questions regarding the independent election commission and an acceptable caretaker prime minister to both the ruling and opposition parties.
With Senate elections due on March 02, the present government would try to buy time as the present electoral composition would allow the government to become the largest party in the upper house. In this regard, PM’s appearance in the court could be used as a delaying tactic with either a) PM accepting his mistake and making commitment to open the cases or b) refusing to write to Swiss authorities under the ambit of presidential immunity.
Whereas probability of the former being the case is low and will automatically buy time for the government, the later could result in the PM disqualification, resulting in change of the prime minister. Even in this scenario government would get time to secure its position in the upper house. Beyond the point, we believe there would be overall consensus of early elections by both the government as well as the opposition.
Stock market investors will keenly follow developments on the political front. Given early election or otherwise, we expect political noise to remain high in the coming few weeks and the tug of war between political players would create a wave of uneasiness at local bourses.
The market will rally if independent caretaker government is appointed with consensus to supervise the election in 2012. Investor will cheer any announcement of early change in the government considering that last 4-year of PPP government brought average GDP growth of 2.9 per cent only while average yearly inflation of 14.6 per cent in the said period.
Looking at the past trend, stocks have rallied by 9 per cent and 12 per cent on an average 3-month and 1-month before the elections. And this time also we expect share value to react positively.
