BUY HIGH, SELL HIGHER Needs To BE Taken As A Caution In The Markets. #MirMak
First of all lets begin with clarifying that i love the value in Pakistani Stock Markets. It is still trading around 10.6 multiple compared to the regional multiple of 16 or so. So there is room to grow. Interest rates are at the lowest. GDP growth is expected to be around 5.3% for 2017. International outlook towards Pakistan has become favourable. We are declared one of the best stock markets of the world. Corporate earnings are strong. Chinese consortium has bought into PSX that has brought international attention to PSX in abundance. And the list can go on for the long term perspectives of the markets. PSX came out like a roaring lion in 2017, entire January. Euphoria was created and social media gurus are luring people into buying everything in sight. This gave birth to a phenomenon rarely known by people in this part of the world, which is, BUY HIGH, SELL HIGHER.
Buy high, sell higher theory defies the age old theory of Buy Low Sell High. Buy high sell higher gives birth to non savvy investors. It gives birth to unscrupulous financial agents looking to generate commissions only. It also gives birth to a euphoria which starts to defy current price discovery of stocks. Future price discovery is very different than current price discover. Future looks great. Future of PSX looks bright. Future of the prices look excellent but current price discovery is a bit high to me. Another phenomenon is that since we do not have any short selling in ready markets, this means that the upward trajectory of stocks had no resistance. Not all stocks can be shorted in Futures Market thus it leaves people with one choice only, which is, sell at a higher price then wait for it to come down so they can buy it again at a lower price. That leaves no room for liquidity while the stock is going down because nobody is buying and covering their shot positions when the stock is going down. So the stocks come down faster in Pakistan then other countries i have seen throughout my career.
Plus the Lower Lock phenomenon is the worst psychological deterrent to new buyers. It has failed to bring any positive results in any markets. The worst effected market by Circuit Breakers (Locks & Caps) was China itself in recent history. It had to reverse their decision, and they did. Once a stock goes to a lower lock it gives an impression based on the number of shares offered for sale that it will go down further the next day, this scares the buyers and further selling comes in.
Having said all what i said above, i believe that a minor correction at these levels would be the most healthy thing for our markets. It will bring in new buyers. It will create more confidence. It will be a natural event. Correction only means a correction. It does not mean a crash. SECP has put in enough measures in place, according to its Chairman itself who made that statement few days ago that we will not see a crash. And i fully agree with him. So make your decision based on logic. Buy more or take profits, its your choice. I did my job of educating all of you of what i think. Thanks.