On the first trading day after the Pakistan Tehreek-i-Insaf (PTI) won National Assembly seats with a majority, the stock market staged a relief rally as the clouds of uncertainty about whether timely elections would be held were dispelled.

The benchmark KSE-100 got off to a storming start last Thursday, climbing to an intraday high with 797 points and closing with gains of 750 points or 1.8 per cent. Since the Index had also notched up 875 points in the trading session last Tuesday — a day ahead of the elections, market performance did not seem to be incredibly exciting.

Given that investors have already lost a fortune in the long bear hug, it is prudent for them to look before they leap as far as accumulating the heavily discounted blue chips is concerned.

“A major concern was the probability of a hung parliament,” says Arif Habib. There is more confidence now that such an eventuality did not materialise

After an approximate two week settling down period it will be time to test the new kid on the block.

The initial impression of the broker and investor community is one of optimism. Sniffing a change in the wind, many major financial markets investors, brokers and fund managers had started hobnobbing with PTI Chief Imran Khan before the elections.

Mr Arif Habib, former chairman of the Exchange, mirrored investor sentiment stating “besides a question mark on the elections being held on time, investors’ major concern was the probability of a hung parliament,” he said. There is more confidence now that such as eventuality did not materialise.

Mr Habib stressed that there was no dearth of liquidity in the market and once firm measures had been taken to resurrect the ailing economy, retail investors, high net- worth individuals, institutions and fund managers may return to the financial market in droves. He said that the PTI chairman’s pledge, in his speech last Thursday, to bring in investment by non-resident Pakistanis was a good omen; and foreign investors, who have been dumping Pakistani stocks for quite some time, would be comforted if the government was able to stabilise the value of the rupee.

Hamad Aslam of Elixir Securities pointed out that the PTI’s economic agenda had the following aims: to improve taxation; enhance labour market; build low cost housing; improve ease of doing business; revive manufacturing; transform State-Owned Enterprises (SoEs); tackle energy challenges; enhance CPEC benefits and enable access to finance.

Nabeel Khursheed at Topline Securities recently observed that the twin deficits are a cause for concern. Conservative estimates place the country’s external funding requirement next year at around $20 billion. “We believe that Pakistan will likely enter an International Monetary Fund (IMF) programme in the next few months to address the rising deficits,” he said.

Some of the reform measures that could be adopted include further currency devaluation, another interest rate hike, an increase in tax rates, higher regulatory duties to curb imports, higher energy tariff to contain the circular debt and fiscal deficits, etc. “The compound effect of these measures will likely slow down corporate earnings and economic growth going forward,” he contended.

Many financial market experts sympathetic to the new government argued that PTI does not have a magic wand to fix all the problems which have contributed towards the crisis on the economic front. But there is hope for improvement as technocrats, whom the PTI leader prefers, take over the reins of the economy. Any improvement in that sphere would reflect in the performance of the financial markets.

Investors in the Pakistan Stock Exchange (PSX) have suffered enough. The celebration of ‘being the best performing market in Asia in 2016’ when it dished out a mouth-watering 44pc return, came to an abrupt halt in May 2017 when the market was stunned to see huge outflows; which went contrary to all forecasts of massive inflows on the eve of PSX entry into MSCI Emerging Market.

Earlier, an anti-stock market budget also dealt a big blow to the market. By the time then- Finance Minister Miftah Ismail announced liberal incentives in the 2018-19 budget, it was already too late and the damage had been done.

Mr Khan also talked about creating an atmosphere of ‘ease of doing business’, which must go well with the Pakistan Business Council and the Overseas Investors Chamber of Commerce and Industry for they have been long clamouring for such a change.

Former Prime Minister Shahid Khaqan Abbasi had taken the lead in this regard by constituting a Board of Investment (BOI) committee which identified 68 initiatives to improve the country’s ease of doing business ranking. The new economic managers can examine and take over the work from where it was left.

The PTI leader has made big promises. The business and investment community will soon start to see if the untested leader is able to walk the talk.

Published in Dawn, The Business and Finance Weekly, July 30th, 2018