Will the stock exchange breathe a sigh of relief after Panamagate verdict?

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Lahore: It has been a tumultuous few months for the country, as the Panamagate scandal had viciously gripped the country and media frenzy surrounding it never seemed to have faded. As the dust settles after a unanimous decision by the Supreme Court on Friday of disqualifying the Prime Minister Nawaz Sharif for life, the question arises how will it affect the economy in general and especially the Pakistan Stock Exchange (PSX).

Since June, the PSX has been under the scanner for its rough performance and the anticipation of its inclusion into the MSCI Emerging Market index seems to have worn out. The political climate of the country which has been temperate to say the least and the focus on Panamagate scandal particularly hit the stock exchange very hard.

Earlier this month, a Bloomberg report raised questions over Pakistan’s re-inclusion into the MSCI Emerging Markets Index in June. The article had cited that the IMF in its recent evaluation of the Pakistan Rupee (PKR) said the currency was overvalued by around 10pc to 20pc.

Pakistan’s reinstatement into the MSCI Emerging Market Index was expected to herald in an inflow of millions of dollars which never happened and instead the KSE-100 index had nose-dived 13pc since the article had said back then.

It concluded that due to a massive downward spiral of the PSX, the country’s stocks had become the cheapest in Asia, which meant that Pakistan was back to the level reserved for frontier markets.

Further worsening matters, on the 5th of July, PKR had fallen sharply both in the interbank and kerb market to reach a 2.5 year high of Rs108 from Rs104.91 the previous day. The PKR had remained relatively stable since August 2015, and according to a Topline Security report, the currency devalued annually by 5 percent in the last decade or so.

In another article on investment website ValueWalk earlier this month, it said that PSX had suffered its worst performance in June since 1999. It further went onto state about PSX having been proclaimed the best performing stock market of 2016 in Asia with an astounding return of 46pc.

As per research released by the International Journal of Accounting and Economics Studies on the stock market fiasco, which cited that political events and performance of the PSX were closely interconnected. The research conducted into three earlier elections by this think-tank revealed that political events in the country have always had a significant impact on stock returns.

The study added that before elections in 2002 and 2008, the stock market had experienced a steep level of uncertainty in comparison to 2013 when it surged after the PML-N came into power.

With the PM gone now and the cabinet disbanded, businessman have heaved a sigh of relief on the conclusion of the Panamagate case. While talking to Pakistan Today on Friday, FPCCI President Zubair Tufail had said “Everything, including the economy was stagnant for last one and half year as there were only chants of Panama, Panama in the country, but now the growth of the country will march towards development.”

According to this week’s outlook by AKD Securities which said “Repercussions of the precedent setting Panama verdict are likely to cut across investor sentiment, with continuity of government and continued grip on economic affairs at the fore. Even so, sustained pickup in global oil prices, macro-economic stability and relative clarity following the SC verdict could lift investor unease and clear the path for pairing back losses.”

When the PSX opens on Monday, it would be interesting to see the post Panamagate verdict developments and how going forward it will perform as the PML-N ponders whom to select as new PM and what the cabinet would shape-up like in wake of the SC decision.