The meltdown in the country’s equity market continues unabated. The benchmark KSE-100 Index has already tanked 5,030 points or 12.2 per cent in the 75 trading sessions since the incumbent government took office. During the period as much as Rs964 billion have been wiped out from shareholders’ wealth.

Although it would be unfair to blame the PTI government for all of the market downside, the ‘uncertainty’ shrouding the present government’s handling of the economy has done more harm than perhaps the state of the economy itself.

The two major issues that sit heavily on investors’ minds are the fast depleting foreign exchange reserves and the deteriorating balance of payments position.

Countless sojourns of the prime minister to friendly countries, and the eternal friends yielded precious little in cash to replenish reserves which had dwindled to a four-and-a-half-year low following continuous erosion over 13 successive weeks.

Brokers are generally afraid of providing an on-record prognosis of the market for fear of falling on the wrong side of the government. But privately most of them caution that they see no floor under the ongoing market fall

With support coming from Saudi Arabia, the economic managers took a breath of relief as reserves propped up to $8bn.

But the government may soon be scrapping the bottom of the barrel again, the last released figures for the week ended Nov 30 showed foreign exchange reserves held by the Central Bank plunge 7pc on a weekly basis to $7.50bn, attributed to external debt servicing and official payments

In the final week of November, the market faced a double whammy: The sharpest hike in policy rates by 150 basis points together with the depreciation of the rupee by 3.8pc the same day. This stoked the bearish flames that were already leaping over the stock market for the previous five weeks in a row.

After the twin measures the first trading day saw the stock suffer the worst single day decline in 16 months with the KSE-100 Index taking a plunge of 1,335.43 points or 3.30pc.

The confusion was confounded when the prime minister distanced himself from the decision of the massive rupee depreciation, laying the responsibility squarely on the State Bank of Pakistan. Investors were further spooked by rumours of a change of the team of economic managers, which the prime minister finally declared was not on the cards.

Traders said that the market was largely at sea over the plans to prop up foreign exchange reserves, manage the fiscal side and to take a decision on entering the International Monetary Fund programme (IMF). The government appears to use the game of plucking the flower petals in deciding whether to go or not to go to the IMF for a bailout package.

But a head of a cement company said that the damage to corporate earnings had already been done by the massive increase in interest rates and equally astounding depreciation of the rupee.

Brokers and analysts are generally scared to provide an on-record prognosis of the market going forward, for fear of falling on the wrong side of the government. But privately most market watchers caution that they see no floor under the ongoing market fall.

Money goes where there is security of investment and better returns. With interest rates swelling to double digits, fixed income products are becoming more attractive with 3-year Pakistan Investment Bonds offering a healthy yield of 11.87pc, up from 9pc that it offered 100 days ago.

While the exodus of foreign investors who have dumped equities worth $410 million in the year-to-date was bad enough, mutual funds are starting to relocate portfolios from equities to the money market.

In the last four sessions, mutual funds sold equity worth $19m. Dr Amjad Waheed, CEO of NBP Funds— the biggest mutual fund in the country with Rs115bn under management —reckoned that 5-10pc of unit holders may have switched to money market funds from equity funds in the last year but asserted that there was no large scale run on redemptions.

Another fund manager observed that funds were reducing their allocation of available funds to equities to just as much as was necessary to be maintained at the minimum by law.

A senior broker observed that much of the selling in the last few days by mutual funds was ‘stop-loss selling’ to protect their ‘capital guaranteed funds’, which triggered automatic forced sell-off in the event of the benchmark Index going into free fall below a specified level.

Understandably, it is not the job of the front line regulator to interfere in the day to day trading at the bourse. Pakistan Stock Exchange Managing Director Richard Morin had told Dawn that risk management measures were in place; nothing unusual was reported on the broker settlement and no broker default was reported to have occurred.

Zulqarnain Khan, executive director, Next Capital complained of over-regulation by the apex regulator where brokers are loathe to open new accounts as they have to follow the ‘know your customer’ rule that applies to banks.

Brokerages also have to keep a sharp eye on anti-money laundering and undergo audits. He said that the finance minister was all too happy to announce narrowing of the current account deficit, which was made possible by the slowdown in the economy and sharp drop in international crude prices.

“He however conveniently avoided mentioning the fiscal side which remains a major cause for concern,” Mr Khan said.

Published in Dawn, The Business and Finance Weekly, December 10th, 2018