Not so emerging market-like?
It’s definitely not just a correction – contrary to most of our market pundits – when the exchange drops a good 16pc from the all-time high (53,124) touched less than a month ago (May25). That this happened just when the PSX formally re-entered the MSCI emerging market index only leaves more egg on our risk-averse pundits’ faces. The truth is that when everybody at home and their uncles were busy taking anticipatory positions ahead of the re-entry, foreign portfolio investment actually packed up and left – to the tune of hundreds of millions of dollars – just as we went emerging market again.
The rationale is quite simple. The hype that built the market all the way to 50,000 matured with the re-entry. Then on, market fundamentals would actually matter more. And with the PM in the dock (JIT) and US President Trump apparently unhappy with the Pakistani role in the Afghan war, etc, foreign investors are not exactly comfortable about the immediate term, at least. Then there are pretty compelling economic reasons. What happens to stocks like Lucky Cement’s, for example, when the export sector sags again and Lucky Cement, among others, exports considerably less? What quantum of FPI are those pundits really expecting in these circumstances?
There’s another, quite typical, pro-correction argument, no matter how steep the fall. What if, just like last time – and the time before that – the market just turns around and starts rising, never mind the FPI off-take? The point to remember here is that approximately $10b in market capitalisaion left our equity market for money heaven in less than one month, with the scrips with the most weightage taking the worst battering. And even if fringe stocks can be inflated in the coming month or two to breach the psychological 50,000 barrier once again, what of the billions in market capitalisation that will never come back? The businesses, the market and even the pundits might get some face-saving. But what of the investors whose money really disappeared? Is this how emerging markets operate?