If anyone can answer this question with exactness, I would like to become his disciple. Many before and many after, will take a guess. Many have been wrong and many will continue to be wrong. No person or entity can give you an EXACT number of a market bottom or a market top. You could be near it but not exactly.
Russian market started to go down. People jumped in thinking that it is cheap. It went down further. They bought more, thinking it’s even cheaper, it went down more. They panicked, they held on as much as they can until panic took over absolutely and they all sold. All of them selling altogether made the market go down even further.
Philippines market did the same last month. Exact same pattern followed until it dropped 18% and June exodus of funds alone was $1.6 billion of the foreigners alone.
Remember one thing when you look at your own markets. What is good about this market ? That is the question all institutional investors will ask. Anyone who is sitting outside Pakistan, specially. And there should be multiple answers to this single question. Multiple. But never the price of the stock or the value of the index. That would be the biggest mistake. A mistake any novice and many intermediate investors make. ABC stock was trading at 500 Rs, now its at 240 Rs, it must be cheap. Or the index was at 54,000, now it is at 36,000, this must be the time for buying.
Absolutely wrong approach. A
disastrous one to speak honestly.
No Index is ever expensive or cheap and no stock either. If the stock is trading at half its value, either the revenues are down, earnings have or will be reduced, market sentiment of the sector is bleak, overall market is in a downward trend or there could be numerous other reasons.
I am not going to give you numerical arguments with numbers, PE, Valuations, Historical Data and so on. This article is about logic. Logic based on reason. And reason based on facts not emotions.
Look at the foundational reason of a market flight upward or its descent downwards. And you will get a better idea of “why” and “What”.
Our reasons for the Pakistani markets started with political upheaval but if you think that political upheaval alone caused the markets to go down from 54,000 to 36,000, then you need to think twice. Political upheaval broke our momentum. It would have rebounded if our economic foundations were strong. Political instability actually gives a reason to buy more after the market comes down. It happens all over the world. But our markets kept going down because bad economic data kept getting revealed.
One bad news after the other.
Current Account Deficit. Budget Deficit. Dwindling Reserves. No effect from inclusion of Emerging Markets. Decreasing exports. Increasing imports. Expected high inflation. Debt repayment issues. No stimulus for the stock markets in the budget. Looming IMF conditions. Extreme volatility in currency prices. Circular debt involving listed oil companies with huge percentage of the Market Capitalization. Threats from America with statements hurting the economic future.
You name it and we have had
it. Has any of this changed ? Is anything I mentioned above gotten better ?
Even just one of it. If your answer is a NO, then this market has not bottomed
Even if it bottoms out, does that mean it will rise again ? Absolutely no guarantee of that. There are markets around the world that have gone down and remained down or became range bound from its bottom. If I were you, I would wait. Wait and see a direction and not get sucked in to temporary bounces.
A positive momentum can be picked up if we hear a series of concrete positive news about the markets. Remember the two key words that I have used, “Concrete” and “Series”. Not rumors and not one off good news.
So like all prudent investors will do in such a situation that our markets are in, WAIT. Wait and watch. No need to swim until you know the temperature. And the temperature can become favorable or it may not. Only immediate future will determine that.
Insha Allah, it will get better. I pray and I hope.
Author: Mir Mohammad AliKhan