Exercise caution ahead

Book positions on rallies, not dips

Pakistan’s elevated status of an emerging market has been attracting scores of eyes and market experts are anticipating foreign inflows worth at least a few hundred million dollars before mid 2017, the time when Pakistan actually gains that status

A unified bull force ensured a determined effort to push the benchmark KSE-100 index beyond 40,250 points in a dual bid to make new highs and test the next major resistance at 42,000 points. The bears, however, having lost almost all games played between the two sides since 2011, showed some signs of regaining strength this past week, defeating the opponents four out of five times and pushing the index down 1.6pc from its highest level of 40,102 to close at 39,464 points.

In my previous few columns, I had been persistent in pointing out that post-40,000 level, market seems to be losing strength. Although punters have put in a determined effort to go beyond 40,250 points in a dual bid to set new highs and test the next major resistance facing the market around the 42,000 points mark, the counter-strength shown by the opponents has been convincing. The macro-economic situation also favours the bears and we know that the bourse is a true indicator of the economy.

Pakistan’s elevated status of an emerging market has been attracting scores of eyes and market experts are anticipating foreign inflows worth at least a few hundred million dollars before mid 2017, the time when Pakistan actually gains that status. That Pakistan does not enjoy a hefty oil-based income and that the law and order situation is such that it cannot be boasted about are reasons enough to counter that argument. Making comparisons with Qatar is a bit premature, unless we start extracting oil from the potential rigs that may be in Balochistan, with the assistance of China of course.

China reminds me that CPEC is the only project where the entire government machinery, not to forget the army machinery, is in full force in a bid to reach completion before 2018. The only thing that government needs is time, which is ticking fast. Other than this, we continue to face power outages domestically and commercially. Public transportation continues its successful journey of becoming the most favoured developmental project across the three major provinces (elections round the corner). Healthcare is still at the bottom on the list of to-do things. The record breaking bourse and the lowest discount rate in the recent history of Pakistan are surely a few things which the government can self-praise itself. Inflation has nosedived to below 3pc, but what has contributed the most? A global meltdown of oil prices and hence energy. A rebound in oil prices is likely to give price shocks to Pakistan, resulting in higher inflation numbers, again.

Issues which are being overlooked on the macro-economic front, to name a few, are very alarming and their effect will be felt in the longer-term. Do not ignore this. Exactly a year ago, the government issued 10-year bonds worth $500m in the Eurobond market at a coupon rate of 8.25pc. What’s so wrong about it? Our foreign reserves have increased thereafter and our benchmark discount rate is at its lowest. Yes, both are true. What’s suicidal is that we used up this amount to address the bonds which matured in March 2016. The rupee has depreciated at least 10pc since then. The return on bonds is in dollar terms. Tough times ahead. I doubt this government will be in power when these bonds mature in 2025.

The opposition is on the roads since forever. Sometimes protesting against the motorways and other times inaugurating a few routes. Had attention been paid to energy development and enhancement in KPK, we would have been in a different ball game. Nevertheless, in putting our personal liking and disliking above the national cause, we have proved how patriotic we are as a nation. What has been lost in this cause? Time and resources which can never be regained.

We are losing competiveness globally in the cement market. Iran is dumping markets with its better quality, relatively cheaper cement. It has already taken over a major share in Afghanistan and South Africa, two markets which account for our major export market share. Our response? Focus attention on CPEC and Gwadar to lose a permanent market in this era of cut-throat competition. Unless we resolve this issue in a congenial manner, the sector leading the bourse might start losing out on earnings and hence diminishing in value in the subsequent quarters.

40,000, I hence believe, is just a barrier with no significant economic impact. The fact remains that neither are we leading the Asian countries nor do we have any projects in the pipeline that will make us lead. Basing success on index numbers means having not learnt a lesson. Being perseverant on it means blocking all ways for future success too. Alarming indeed.

Caution is the preferred strategy for the short-term at least. Positions should be booked on rallies and new positions should not be taken up on dips. The major support continues to be strong around 38,200 points and below that, market could test 36,000 points on the benchmark index.