Since the turn of 2014 Pakistan, one of the investor-favourite frontier markets, has railed 7 percent or 1,741 points, thanks to continuous foreign buying.
In this bull-run the market has completely ignored the internal security issue that has marred the country due to rising terrorist attacks, said the equity analysts.
And now, they said, the country’s top brass was hinting towards a full-fledged offensive against the miscreants.
Yesterday, PM Nawaz Sharif decided to take the parliament into confidence as majority of the legislators were in favour of military operation. “Investors are however concerned about how will market react to such an attack,” viewed Asad I. Siddiqui of Topline Research.
A successful military operation, the analyst said, would positively impact overall security situation of the country by restoring peace.
And this in effect would further enhance the confidence of not only local but foreign investors, Asad said.
Also, he said, this can result in better investment environment at a time when investment-to-GDP fell to multi-year low of 14% in FY13.
“We still maintain our positive view on the market,” said the analyst.
He said the index may be climbing up to 30,000-level in 2014, and if PE was re-rated the index could reach as high as 33,000-level in the current year.
There have been three full-fledged operations that the armed forces carried out against the trouble making elements in the country.
The first operation started off in Wana, South Waziristan on March 16, 2004 and lasted for seven days as by March 23, 2004 army took complete control of the area.
While the 2nd operation took place in Swat on October 27, 2007 and lasted for 45 days before coming to its conclusion on December 8, 2007.
During both these occasions, the market took the army action positively as benchmark index rallied in first five trading session from the commencement of both operations the market gained roughly 2% and 5% in 2004 and 2007, respectively.
Conversely, the market declined by 7% in first five sessions when 2009 operation took place again in Swat in May 2009 and lasted for nearly two months.
“However, we believe operation in Swat was not the sole reason for market’s performance,” said Asad.
Adding that the bourse was under-pressure more due to violence in Karachi (gang war and clashes between political parties) coupled with mixed to negative results from some blue-chip companies which exerted additional pressure on the bourse.
