KSE100 Week 10-2021: Bears Blitzkrieg!!!

One of the worst post-COVID19 performances of the markets with obliteration of -2,049.27 points or -4.47%. The free fall breached all supports and fell as low as 43000 +/-300 - pre-COVID19 resistance acting as support. Although we had assigned a low probability of KSE100 breaking below its major support of 43800 +/- 300, the risk was always on cards and warned appropriately. Although losses were pared on the last trading day when the index made a sharp recovery of +1008 points to close at resistance (previous support), the trend is already wearing out. We suspect the market may go through a reset cycle which may lead to a fall as low as 40K shall the momentum remains in decline. On the positive side, sustaining above its major pivot zone of 45100 +/-100 may signal a fresh accumulation cycle towards a new high. Looking forward, the strategy shall be to book profits on strength or wait and see approach. Please read the last few week's updates to establish a better understanding of this posting. 

One of the highest weekly declines was observed with a net loss of -338.22 PKR/Billion from weekly average capitalization. It appears that the 8000+ billion/PKR mark is really a tough line for bulls to cross. This is the third time major rejection has been observed at this level. 

Part of this spectacular capitalization loss was driven by treasury auction (Auction Result: SBP Sells T-Bills worth Rs.715.46 Billion) which observed a resurgent interest by investors due to rising bond yields. Multi-year Pakistani bonds are reflecting a bullish trend due to an aggressive borrowing target of 4.92 trillion until May-2021 (Govt plans Rs4.92trln domestic borrowing in three months). This paints a depressing picture for equities at least until May-2021. The outlook will be further destabilized when/if short-term yield also begins to rise sharply. A 10% P.A (or greater) risk-free fixed return in the short term makes the equities market very unattractive. We can only keep our fingers crossed and watch the markets take their course. Below is a chart demonstrating bond yields of different tenors. [EDIT] For the week ahead major financial markets event is MPC announcement by SBP (SBP to announce Monetary Policy on March 19).

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