FACT is stranger than fiction. It’s time to buy when there is blood on the street, they say on Wall Street. But not when there is an unending massacre. Yet the benchmark KSE-100 index staged a massive rally of 3,512 points in the last five trading sessions, providing the highest-ever weekly return of 12.5 per cent.

The index, which settled at 31,621 points on Friday, had rebounded from a six-year low of 27,229 points that it touched a week earlier. The three-week rout had washed away a staggering 37pc from share values at the Pakistan Stock Exchange (PSX).

The strongest weekly rally in history was, therefore, difficult for the faint-hearted to watch amidst the dreaded spread of Covid-19, global recession, disarray in the domestic economy, negative 6.5pc growth in exports and a $1.5 billion plunge in foreign exchange reserves.

Encouraging news flow in the market was scarce with a persistent sell-off of equities by foreign investors. The lockdown of manufacturing facilities will eventually lead to low supplies, poor sales and badly bruised profitability, forcing the boards of directors of listed companies to either lower the dividend payouts or scrap them altogether.

The benchmark index posted the highest-ever weekly return of 12.5pc in the last five trading sessions

No market stalwart was willing to hazard a guess 10 days ago on how low the index could fall, much less on how high it would go. PSX Director Ahmed Chinoy said on Friday value hunters seized the opportunity to buy given the low stock valuations. He still regarded the market trend as positive going forward. According to Arif Habib Ltd, the PSX is currently trading at a price-to-earnings multiple of 5.8 compared to the Asia Pacific regional average of 10.2.

Now that the market has taken a turnaround, brokers, traders and investors are forwarding a long list of reasons that made the market bounce. These include the decision by the central bank to cut the policy rate by another 150 basis points, the relief package of Rs1.24 trillion, a drop in headline inflation to 10.2pc from 12.4pc a month earlier, a surge in international oil prices and a separate package for the construction industry.

But above all, market participants agreed that buyers scrambled to accumulate stocks that were available at dirt cheap valuations. The investors’ interest was centred on oil and gas exploration and production (E&P) stocks. As the cement sector gained 26pc week-on-week and E&Ps rose 16pc, other sectors followed. Incidentally, the number of registered investors on the PSX with unique identification numbers (UINs) has slumped to 176,000 from 250,000.

Topline Securities CEO Mohammad Sohail observed that it was too early to say if the market will stabilise. “It would depend on the state of the coronavirus pandemic, which would determine the lockdown of industrial activity.” His brokerage is looking at corporate earnings that are 15-20pc below the estimates from three months ago.

In the massive ups and downs of the market, some even suspected foul play. A former general manager of the PSX, Sani-e-Mahmood Khan, suspects a collision between some mutual funds and powerful individuals. “A general feeling exits amongst market participants that (some) mutual funds buy at higher levels and sell at dips,” he says. This is the opposite of what mutual funds should be doing.

He supports his claim with figures. “The meeting of major market participants with the army chief on Aug 16, 2019 provided investors with confidence, leading the market to stage a massive rally that saw the KSE-100 index gain 14,403 points in just 109 trading sessions,” he says.

He points out that high-net-worth individuals took the lead and bought at the index level of 28,000 points whereas mutual funds kept selling. On the 109th day (Jan 17), when the bulls were exhausted at 43,168 points, mutual funds began to buy and individuals started to sell.

“Hence, according to some cynics, the plan was carefully laid out by the high-net-worth individuals for their own benefit,” he said. Mr Mahmood admits that the conspiracy theory can be wrong. Since the automated system can identify UIN-wise buy and sell data of individuals and mutual funds, the regulators ought to investigate if there was a conspiracy to benefit certain individuals at the cost of the unit-holders of mutual funds.

A fund manager called the whole idea rubbish, saying that in the competition among funds to raise money from investors by offering the best possible returns, an underperforming fund manager is likely to strike the road in search of another job.

Published in Dawn, The Business and Finance Weekly, April 6th, 2020