August 9, 2019 (MLN): “Buy when there is a blood on the street.” This figurative quote by a British nobleman Baron Rothschild, is a favourite motto of trading fraternity who are looking for prospects to buy stocks at bargain prices when the general market is into panic selling.
Now this could be the time for this famous saying to hold up for Pakistan Stock Exchange as there is sea of blood in Pakistan stock market.
As it is difficult to ascertain the exact bottom, a research report by Insight Securities compared price falls during current cycle with the 2008-09 crisis, which suggests that the bottom is near.
As per the research report, by contrasting 2008-09 and 2017-19 downcycles for the companies that were present in KSE-100 index during both time periods, indicated that in US $ terms, KSE-100 index is down by 62% now vs. 73% during 2008-09 crisis.
While looking at it fundamentally, the macroeconomic situation is improving as IMF program underway, much of the devaluation has already happened, interest rates are peaking, inflation expected to peak in couple of months, oil prices are going down, and current account deficit expected to drop sharply from July 2019.
With regards to valuations, report highlighted that valuations are also dirt cheap where market is trading at a forward price to earnings ratio (P/E) of 5.4x, only 0.6x higher than lowest avg. monthly P/E (2006 to date) of 4.8x in Jan-09, indicating that there is not much room left for downside.
