What our soaring bourse sees but TV anchors ignore

Noise. There’s so much noise and confusion on how to judge PTI’s handling of Pakistan’s economy. The stock market soars during the day, while TV anchors roar at night. So, who should one listen to? After two years of negative returns (-15% in 2017, -8% in 2018), the stock market posted its first positive return of 9.9% in 2019. More dramatically, the stock market has rebounded by a staggering 50% since its August 2019 low. So, what’s really going on?

The stock market tells a story of Pakistan’s economy which can factually prove or disprove the government and opposition’s narrative on the economy. And here’s the story it tells. The stock market hit a historic high, crossing 52,000 points in May 2017. Ever since then, it’s been on a steady slide, collapsing to a spectacular low of 28,000 points in August 2019. There are two stories these numbers tell. First, the slide in Pakistan’s economy started during PML-N’s time and continued into PTI’s tenure. Second, PTI’s economic policies have helped trigger a dramatic turnaround in the stock market, with investors pouring their hard-earned money in, signalling an endorsement of this government’s reform journey. On both counts, PTI’s narrative stands vindicated.

Now, let’s unpack these numbers and narratives. The PTI keeps arguing that they’re correcting the economic sins of the previous government. The stock market agrees that the PML-N had sinned as is visible in the spectacular downward trajectory the market went on from 2017 onwards. What were those sins? Put simply, the PML-N was borrowing money to fuel current consumption, by keeping the rupee value artificially high, devastating our export sector and turning us into an economy led by import/consumption. This resulted in obscene economic imbalances, including Pakistan standing on the brink of external account bankruptcy when the PTI took over.

The PTI came in and took politically unpopular but long-term reform measures, which sowed the seeds of a dramatic turnaround. Bringing the rupee to its real value helped remove market distortions, incentivising exporters and investment, de-prioritising an import- and consumption-fuelled economy. This resulted in the shock current account surplus posted for a month late last year and a collapse in the current account deficit more spectacular than the Pakistani batting order. Think I’m too bullish? Read this unbelievable sentence in the equity strategy report issued by one of Pakistan’s leading brokerage house, JS Global.

“The (stock market) rally, which was broadly expected to start closer to the end of CY19 or somewhere in CY20 came in like a wrecking ball well ahead of time. On one hand, there was a series of back-to-back positive news flows, while on the other, fears that had previously gripped investors never saw the light of day. Not too long ago, many were apprehensive of highly stringent IMF conditions, minibudgets, a ~Rs200/USD exchange rate and 18% interest rates!” For those used to reading dry equity reports, this one’s a gut punch to the opposition’s narrative.

Now, a few important caveats. Not all is well in the economy, especially when it comes to issues that matter to the common man. But the government isn’t claiming that these issues are resolved. Their narrative is that they inherited the sins of the previous government and are now focusing first on stability, followed by growth and then relief. The stock market agrees with PTI’s narrative through stability. The next step remains to be seen but the game-changing impact and radical transparency of Ehsaas shows the government is committed to taking care of the most vulnerable parts of society.

Finally, the stock market, although driven by hard finance and numbers, can often be read like poetry that is experienced from the lens through which you view the world. This explains the divorce between the narrative TV anchors are peddling versus what the bulls in the stock market are screaming. The stock market is already ignoring the noise of the anchors’ doomsday coverage. Next up? Their audience.

Published in The Express Tribune, January 26^th, 2020.

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