For all those being too optimistic about the PSX rally, let me clarify a few points:
1. Task Force created to curb money laundering and counter terror financing will investigate PSX brokers, their client’s records and that of their beneficiaries will bring into accountability many brokerage houses and this will create panic selling. This move is essential to comply with FATF in order to avoid being placed in black list. Their delegation is likely to visit in September.
2. Though gas and electricity prices increase news has been dispelled but that doesn’t mean it has be put off and is delayed instead. Once the rate increase is known through official notification, only then potential valuations can be made for different stocks in terms of impact on EPS of various companies.
3. Though buiding dam is a priority, but how can it begin without sufficient funds. PM has urged all Overseas Pakistanis to deposit at least $1000 making it approximate $8 billion. This will surely not happen overnight.
4. Low cost 5 million houses can actually lead to goverment slashing cement bag prices where over PKR 500/bag is prevailing at the moment in different regions.
5. With around $31B to be repaid in FY19, IMF program seems inevitable and if pursued will impact economic growth and CPEC progress, as IMF bailout conditions include tariff rise, USD/PKR at 135 and rise in policy rate around 9%, making business climate less attractive in Pakistan.
6. Progressive taxation on wealthy individuals and on brokers in coming days will also face opposition from rich individuals.
7. Trump’s increasing tariff pressure on China can disrupt global growh and hit emerging markets the most, including Pakistan, where piling debt, highet trade, budget deficit, and a weak currency can be impacted the most.
To sum up, these are some important reasons why PSX volumes are low these days and market participants are waiting for sound economic policies before they invet their money. Pakistan is under depression and to deal with it will take at least one more year to normalize the situation. Next moves by the government will involve progressive taxation, restructuring of debt (losses for banking sector), and printing of money by SBP which means more inflation. Market will make a new equilibrium very soon taking account of all those points above.