SPILLING over from the spectacular rally that started in the last week of 2017, the benchmark KSE-100 index has jumped 3,707.35 points, or 9.2 per cent, since the start of this year.

It is difficult to find method in the madness of the stock market. From Asia’s best performing market in 2016 with a mouth-watering return of 44pc, the Pakistan Stock Exchange (PSX) became one of the worst performing markets the very next year with a negative return of 17.4pc.

Referring to the tragic collapse of a balcony inside the Indonesia Stock Exchange building complex in Jakarta last week, a local commentator remarked: “Whether it is the ‘roof’ over the head (Jakarta stock exchange) or the ‘floor’ under the feet (PSX) — no guru can predict when either will collapse.”

It is these mysterious ups and downs in the equity market that charm even small means investors, who, despite having burnt their fingers, return to the market to try their luck just one more time.

At its peak on May 25, 2017 at 52,876 points, most reliable market pundits were visualising the KSE-100 index would hit 62,000 points by the end of 2017. Instead, the benchmark spiralled down to 40,000 points.

Many gurus understandably disowned their prognosis. They made a careful analysis in issuing the outlook for 2018, and made a conservative forecast of the index making up to 47,000 points by the end this year, with much of the upsurge coming in the second half of the year.

It looks like history is about to repeat itself

Experts seem to have erred again. Within the first month of the New Year, the index has already hit 44,000 points and, at this pace, the target of 47,000 points may actually be achieved in the next 20 days.

The bullish fire has stunned even the best of analysts, as nothing of moment has occurred on the economic or market front.

On the political side, the passage of an important bill by the Senate dispelled doubts about elections being held on time and the briefing of the Army chief to the Senate comforted investors that the democratic process was not going to be derailed and the government shall complete its term.

Some economists express optimism on indicators such as the growth rate, interest rates and inflation, although the current-account deficit stands out as a major spoiler.

But for all that, the trigger that has set off the current bullish rally is the devaluation of the rupee. Many believe that the stubbornness of former finance minister Ishaq Dar to prop up the rupee’s value drove away foreign investors.

This was also believed to be the major reason why foreign fund managers did not enter the PSX in droves following Pakistan’s alleviation from the MSCI frontier-market index to the emerging-market status on June 1, 2017.

Instead of the universal expectations of heavy inflows, the tide turned to outflows following the upgrade, which was a major reason that triggered the market crisis from its May 25 high last year.

Foreign fund managers put on hold the sum allocated for investment in PSX and even liquidated their positions to thwart the loss when the rupee’s devaluation against the dollar would finally take shape. But all that has changed with the depreciation of the rupee by around five per cent and Pakistan is back on the radar of foreign fund managers.

A study of the figures released daily by the National Clearing Company of Pakistan Ltd (NCCPL), in the first 14 sessions of this year, foreign institutional portfolio investment has stood out at a staggering $76.1 million.

Most people are unaware that the ongoing rally at the market is almost entirely driven by foreign investors. All local individual and institutional participants have been net sellers.

Individual investors have sold off stocks worth $13.9m while companies have disposed of equity of $15.4m. Banks are the biggest net sellers of shares valued at $23.3m and mutual funds, which usually set the direction of the market, have also liquidated their positions by $1.5m.

Meanwhile, foreigners have put the biggest portion of $20.4m in the banking sector on hopes of uptick in interest rates which would leave a healthy impact on banks’ bottom line.

Other sectors that have attracted substantial sums of foreign inflows include cements ($19.4m) and oil and gas exploration and production (E&P) companies ($8.6m). Since the power and E&P sectors receive dollar-based returns, their earnings could also increase.

Although foreigners are known to hold around $7 billion worth equity, the problem with foreign investment is that it is rightly looked upon as ‘hot money’ that can flow out as quickly as it enters.

For a sustained upsurge in market, local participants must join the buying race. Some institutions staring at the rising valuations have started to cherry-pick for what is termed as the “fear of missing out”.

Most investors question whether the good times will continue to roll at the PSX. An analyst at Topline Securities displayed charts and graphs to show that in the last 25 years, Pakistan equities have always surged by 12pc to 22pc on an average in three to six months prior to elections. By that reckoning, it looks like history is about to repeat itself.

Published in Dawn, The Business and Finance Weekly, January 22nd,2018