A long contraction?
The stock market’s up and down journey on Thursday, as well as the three-hundred point rout on Friday, was instructive in terms of what could be a predominant trend in the market in the weeks and months to come. After a jolly 151 point rise on Thursday, the market suddenly turned after the accountability court issued non-bailable arrest warrants for Nawaz Sharif. Investors no doubt instantly priced in more controversy and more confrontation as the Sharifs, unable to justify their money and spending, have fired back by trying to kick up an inter-institutional storm.
Foreign investors, especially, would have been eager to offload as soon as possible. With the case given a Supreme Court mandated deadline, and the Sharif family facing a grim future unless things change dramatically, risk and uncertainty – two things the markets hate with a vengeance – are set to rise in Pakistan. And since the market – till very recently the biggest feather in the government’s cap, especially with the emerging market status, etc – is reacting very sharply to the Panama spillover, there’s no telling which way its pendulum might swing if or when push comes to shove.
When the market tanks a lot of money is lost, of course. It’s not as if when the political climate eases and earnings return the lost money does too. When stocks dive, investors lose money and companies lose earnings which impact wages, which also means shareholders lose more than just stock value. It is one thing if the financial universe is the source of the problems, which can be fixed via policy, but quite another when the political realm casts a long, dark shadow on the market. With the earnings season behind us and politics set to dominate the capital market, could a limited contraction be on the cards?