KSE 100 Rocking!!

It seems that Indian and global (read ‘developed’) markets have finally de-coupled – a theme that people used to talk about immediately post the financial crises. This decoupling means that the US markets are rising and the Indian indices are heading lower!! In fact it is the whole emerging markets bunch that is feeling the heat and some people feel that there is more pain to come. It was this post here that inspired this entry of mine. As you can see in the attached, the BRICS bellwether indices are languishing in the bottom quartile of all the countries tracked there. Interestingly, whenever I have seen similar country stock market return rankings, I always remember seeing Pakistan amongst the top. That piqued my interest and I did some digging around a few days back to test a hypothesis that had formed: since the Pakistani market may not be deep enough, and since it is very volatile therefore perhaps it may have dropped much more than the Indian market post the 2008 crisis. The recovery, therefore, would be higher in percentage terms as compared to India. Pakistan also has inflation. It is perceived by many to be politically more unstable than India. So what’s making FIIs pump money into Pakistan (and Phillippines, etc) on one hand and vaccuum it out of India (and other large EM markets)? What is it about Pakistan bourses that makes hot money go there ignoring the seductive siren song of rising yields in the US? Surely it cannot be asset allocation based weight correction. It doesn’t seem to be an expectation of political stability either. Perhaps it is a feeling that the market is undervalued on a relative basis. Relative to what? The emerging basket? It’s neighbours (India, China & Russia)? Or it’s past? Whatever the answer, I kept coming back to my hypothesis. So some downloads from Karachi Stock Exchange and the NSE and some number crunching/charting yielding the following perspectives:

KSE vs NIFTY historical

Parabolas are very scary. It seems as if of late the KSE 100 is rising us as if KSE 100 = A x t squared. where t = time. Now parabolas require massive amounts of energy to sustain themselves. In the context of the stock market, more money needs to be continuously pumped in for every unit of time elapsed. According to me, if the KSE 100 and it’s ilk form your scene, it’s time to short.

KSE vs NIFTY historical normalized

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About Kaushal
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