Political stability, economic health and international market situation are the primary factors to gauge whether or not investors will continue to invest in a country. However, since all three indicators are unfavorable for Pakistan, investors have taken a decision to withdraw profits and stay away from investing in Pakistan Stock Exchange (PSX).
Due to investors’ reluctance to invest, PSX has suffered fresh losses. On the one hand, Supreme Court is hearing Panama Papers case involving the Prime Minister of Pakistan, and on the other hand OPEC has decided, for the first time in eight years, to cut oil production. Additionally, OPEC’s recent decision would increase oil prices internationally. The looming threat on the Premier regarding the hearing of Panama Papers case is expected to cause serious political trouble, especially if the court would decide against Prime Minister Nawaz Sharif. These two totally unrelated major events have prompted investors to secure and withdraw their investments.
The KSE-100 index closed at 42,622.37 points, showing a drop of 188.90 points. Despite fresh losses, some sectors performed well in the stock market compared to others. Textile sector has been continuously performing poor in the stock market, whereas financial and cement sectors demonstrated improvements. Moreover, stock prices of Pakistan Oilfields Ltd (POL) have increased by 0.87 percent, after the announcement that production at Mardankhel-01 well has been started adding 3,200 barrels daily to their current output.
To any uncertainty, investors respond in one particular manner by securing their investment. A commendable move from business point of view, but due to this PSX would continue to suffer losses in the following days, until the political situation becomes clear, which obviously is inter-related with business friendly policies the current government has implemented.
However, the downward trajectory of textile sector would continue due to a call from All Pakistan Textile Mills Association (APTMA) to shut down mills by December 6, 2016. Whereas, the prospect for banking, cement and petroleum sector is very bright, even in this situation. Moreover, the expected outcome of OPEC’s decision may not be as beneficial as celebrated by the OPEC producers around the world.
Georgi Kantchev, a financial market reporter at Wall Street Journal, saw OPEC’s decision as an opportunity for US shale producers to increase their supply.
— Georgi Kantchev (@georgikantchev) December 1, 2016
The economic impact of OPEC deal will unfold with the passage of time, but US shale oil will remain a great threat to OPEC’s expectations.
Time is the cure of all ills. This has been proven time and again. It has become somewhat customary for political parties in Pakistan to behave in a way that reflects political and leadership crisis in the country. While the people eagerly wait for the judgment on Panama Papers, it is very much possible that the decision will arrive after several months, and perhaps not against the Premier. Moreover, OPEC’s impact is likely to fade away in a couple of days, and the overall situation will become stable.
Until then, PSX is likely to suffer losses, but this also presents an opportunity to people who are aware of the situation on ground, and it is recommended for risk takers to buy the shares trading at low prices. Because, without risk there is no reward!