IF there is one casualty on the trade floor these days, as the market struggles to find the ground beneath its feet, it is the credibility of the stockbrokers and their associated ‘research’ departments. The way in which many unscrupulous entities among them have misled investors in the run-up to the stock market’s inclusion in the MSCI Emerging Markets category should be grounds for an inquiry by the SECP, which has made misleading research a crime. All we heard in the run-up to the big event awaited for months was that ‘passive funds’ would come pouring in and that the stock market would rise in a rapid burst to heights nobody could anticipate. The hype surrounding the event reached near-delusional levels from the start of the year. But when it finally happened, first with an announcement on May 15 that the Pakistan Stock Exchange would be reclassified as an ‘emerging market’, and then again on June 1 when the PSX was formally inducted into the new category, we saw a rout the likes of which we haven’t seen in almost a decade. In one epic trading day, through all those days of major declines, the PSX lost more than 1,800 points, with all stocks across all categories registering steep drops.

Suddenly the broker community changed its tune. The market was now in a panic over the JIT summoning the prime minister, we were told. Political uncertainty, it was said, was clouding the investors’ outlook. The claim was spurious, unless one is willing to believe that the community of brokers is so naïve that it did not realise the Panama case was proceeding in the backdrop of the entire bull run since January, and that the JIT had been constituted on May 5. The link between the prime minister being summoned and the stock market declines is also difficult to understand; hardly anyone — not even the opposition despite its rhetoric — believes that summoning the prime minister would mean an abrupt change in the political fortunes of the country. Fact of the matter is, the PSX has been oversold in the run-up to its inclusion in the Emerging Markets category as broker rhetoric inflated a massive balloon of hype. The SECP ought to investigate who has been overselling the market through it all. Those ‘analysts’ who are found involved in selling the hype should not be allowed to work in the field.

Published in Dawn, June 14th, 2017