WHEN Prime Minister Shahid Khaqan Abbasi met a delegation of stock market brokers on Oct 14, little could he have known that the meeting itself would be used by some elements to allegedly stoke sentiments and swindle retail investors.

At the meeting, the delegation of brokers and officials from the Pakistan Stock Exchange made a strong suggestion that the government should organise a bailout for the troubled bourse that has seen sustained and steep declines since May. The same community of brokers is hard-pressed to explain these declines, arguing at one point that political uncertainty is the driving force, and at another that the market was oversold in the run-up to its inclusion in the MSCI Emerging Markets index in May.

No official word was received from the prime minister about what happened during the meeting, which took place at Governor House in Karachi, but shortly after it ended, it appeared that a few brokers began to put word out that the prime minister had agreed to a Rs20bn bailout on the lines of what was done back in 2008. Going further, they added that the bailout may be announced in the next 15 to 20 days.

This is a patently absurd statement, but once it saw its way into print, the brokers were able to use it to dupe retail investors into believing that a bailout was on its way, and that this would be a good time to start buying.

On the next trading day after the appearance of the ‘15- to 20 days’ claim, the KSE 100 index shot up by 945, with buying seen from all category of investors, including individuals. Individual investors can be convinced easily to start buying based on unconfirmed news of this sort, and once they build a little buying momentum early in the trading day, the rise in the index can infect other category of investors as well.

Once a sucker rally of this sort gets going, the brokers in question can liquidate some of their own problematic positions. Of course, the situation prevailing in the stock market today bears no comparison to 2008, and as such all talk of a bailout should be summarily dismissed by the prime minister. But going a step further, perhaps the SECP should look into which brokers gave what advice to their individual clients on Oct 15 and 16, and whether or not the news was used to artificially inflate sentiments to create a short dumping opportunity.

Published in Dawn, October 21st, 2017