KARACHI: As political clouds begin to clear with the decision in the long-drawn-out Panama Papers case, stock market pundits anticipate that the benchmark KSE 100-share Index will now make a smart recovery and march again towards the much-trumpeted 50,000-point level by the end of December 2017.

A graft case against Nawaz Sharif and his family sparked political uncertainty in the country, which derailed the stock market and struck 17% off the benchmark index. It took the index to the year’s low at 43,783.55 points on July 13 from an all-time high of 52,876.46 points on May 24.

However, submission of a joint investigation team (JIT) report in the Supreme Court, lawyers’ arguments, counter-arguments and legal interpretation of the report paved way for the removal of uncertainty and helped the market recover gradually in the past two weeks.

“Uncertainty was killing the market. This has come to an end with unanimous verdict of all the five judges in the case,” said EFG Hermes-Pakistan Chief Executive Officer Muzammil Aslam.

He explained that disqualification of an individual did not mean that the PML-N government had been toppled. Nawaz Sharif, who has stepped down following his disqualification by the court, would continue to have a strong say in government affairs and party decisions, which meant that economic policies of the ruling party would not change.

“A market rally is in the offing from here onwards,” he said.

Arif Habib Limited Head of Research Shahbaz Ashraf expected the stock market to recover and reach close to the record high level by the end of December 2017.

“Value buying will help the market recover significantly,” he said, adding economic fundamentals of the country and ongoing corporate results season should keep the market on an upward path going forward.

Saad Hashmi, head of research at Topline Securities, believed that the bourse may end the year around 50,000 points if status quo was maintained in economic policies and the rupee-dollar parity stood unchanged.

Revised forecasts

However, the projected 50,000-point level at the end of the year is lower than earlier forecasts of brokerage houses, which expected the index to reach near 55,500 points.

They have scaled down their forecasts in the wake of continued stock selling by foreign investors at the Pakistan Stock Exchange (PSX).

According to the brokerage houses, foreign investors have continued to offload their holdings in the backdrop of overvalued rupee against the US dollar. Depreciation of the rupee may encourage them to return to the PSX.

The previous forecasts were based on anticipated aggressive foreign buying following the upgrading of PSX to the MSCI Emerging Markets index from the Frontier Markets index.

A fast widening current account deficit and other challenges from the external trade account pose a risk to the national economy as well as the stock market.

BIPL Research, in a note to its clients, said “major short-term repercussions may be in relation to the stability of the rupee-dollar parity as the new cabinet may let the rupee depreciate to alleviate pressure from the external account.”

“With clarity now at hand, we expect politics to take a backseat and market fundamentals to start dictating sentiments on the bourse,” it said.

“Market is currently trading at forward PER (price-to-earnings ratio) of 8.5 times and we suggest that investors should focus on scrips which offer long dollar exposure, strong earnings growth and reasonable dividend yields.”

 

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