Market mechanism


It’s interesting that very few apologists for the previous regime repeat the mantra of some years ago, that bullish sentiment in the KSE – at the time the best performing Asian market – is an adequate indicator of economic growth. Yet even if today’s ground reality betrays a hollowness in the assertion, there is usually some level of coupling between national income trajectory and stock market mechanism. But ours is a strange story. The economy is near collapse, deficits are out of control, tax revenue is minimal and export earnings are dropping due to crippling energy shortage, yet the KSE is on steroids, breaching barrier after barrier with some technical analysts even predicting a rise all the way to 18,000. Are they really in their right minds?
Best not get ahead of ourselves. True, the market has displayed tremendous, unexpected resilience. And while the latest surge owes to a multiplication of factors like bid in the international commodities market, rising regional cement demand, improving Pak-US ties, etc, the point might not be far when all-round euphoria actually becomes a precursor to collapse. It’s somewhat like the old real-estate-bubble warning – take profits and exit when everyone including the taxi driver tells you to buy property. In the stock market, it’s a good idea to leave when stocks with fundamentally no life start testing upper limits in day trading.
And that, unfortunately, has begun. Perhaps now, or soon enough, is just the right time for market regulators to make sure a re-run of the ’05 and ’06 collapses is not in the offing. It’d be a shame if the recent roller coaster turns out just another despicable, deliberate act of manipulation, of bad guys entering, bidding up the market, inviting all and sundry, and leaving after whitening a lot of black money. A lot of middle class wannabes have been burnt this way before. It should not happen again.