As the panic-prone investors jettisoned their shares on April 4, sending the benchmark index down to the year’s lowest level (37,516 points), most marketmen whispered that the blame lay squarely on Finance Minister Asad Umar.

Mr Umar had announced, in no uncertain terms, that the country had only two options: either go to the IMF or opt for bankruptcy. He painted a picture of the economy as bleak as he could: GDP growth will be low this year and even lower in the next year while the rupee will further plummet against the dollar.

“Our basic debts are so big that we are near bankruptcy. You are going to the IMF with these massive debts in toe for a bailout,” he tweeted later. The one person who should be in the business of selling optimism was doing exactly the opposite.

“It was impossible to calm the market and the inevitable happened,” said one major trader.

An Asian Development Bank (ADB) report released earlier that day provided corroboration for the finance minister’s statement. It said Pakistan would continue to face macroeconomic challenges despite tight fiscal and monetary policies to rein in the twin deficits, leading to a deceleration in GDP to 3.9 per cent in the ongoing fiscal year.

Traders started congratulating each other when the market gained 10pc in January. But the euphoria proved short-lived. Those who thought that the market had bottomed out are re-rating their portfolios

Rumours not just multiply but also spread fast. A major brokerage house said that investors’ fears were exacerbated by talks of the country abandoning the parliamentary form of government for the presidential one.

The market feeds on fear and greed. At the moment, fear reigns supreme. An expert in equities with hardly a parallel has often asserted that the market is 10pc economics and 90pc psychology.

This is the third bad year for stock investors. From its peak of 53,124 points on May 25, 2017, the benchmark index has tanked by 15,608 points. It closed at 37,521 points on Friday, representing a loss of around 29pc or erosion of Rs2.9 trillion in market capitalisation.

But that is just what the index represents. As the banking and oil and gas exploration sectors command the largest weight in the index, the benchmark is heavily influenced by the rise and fall in the prices of stocks in those sectors. Investors with a mixed portfolio or with bigger stakes in sectors such as cement and steel may have seen more than half of their savings wiped out.

The initial public offering (IPO) market has also dried down as potential entrants in the market have put their plans on hold. They are fearful of under-subscription.

When the market gained 10pc in January, traders started congratulating each other while pointing out that the Pakistan Stock Exchange (PSX) stood out as the best-performing market in Asia. But the euphoria proved short-lived and the index restarted its southbound journey. Those who thought that the market might have bottomed out are re-rating their portfolios.

Regardless of cheap valuations (seven times the forward earnings), investors are avoiding stocks like the plague. This is reflected by the anaemic average traded value of shares, which dropped to around Rs3 billion from Rs20bn a few years ago.

Market strategists rule out broker defaults as there is minimal leverage. “But the accumulated losses of investors will be difficult to wipe out for years as underlying issues are likely to linger,” conceded one strategist.

A fund manager insisted that there was no run on redemptions yet. But money was indeed trickling away from equities to the money market, government papers, National Savings Schemes and other safe havens like gold, dollar and even property — all of which promote the undocumented economy.

Although some market gurus pin their hopes on a pro-industry federal budget for 2019-20, brokers, traders and investors dread that things may get worse before they get better. Most knowledgeable players give the dire prognosis that investors should expect one full year of volatility and more losses.

They have reason to see doom and gloom in the short run. The finance minister has already warned that the country will limp to the IMF programme meekly, which possibly means that it will be on the lender’s conditions. This will further impact the cost of doing business and hit the corporate bottom line.

The State Bank of Pakistan has increased the policy rate to 10.75pc. Many analysts expect the central bank to further tighten monetary policy. The rupee has depreciated by around one-third since the end of 2017. The country is still at the mercy of the Financial Action Task Force (FATF).

From 2015 to 2018, net outflows from the local equity market have been a massive $1.6bn. There is nothing that can possibly plug further outflows.

Other disconcerting factors include the possible decision by MSCI to downgrade Pakistan from an emerging market to a frontier market in its next review in June. The country’s weight in MSCI’s emerging market index has dropped to 0.03pc from 0.16pc. Some analysts are offering comforting words that the country will be better off with a good 8pc weight in MSCI’s frontier market index. But it doesn’t convince knowledgeable players that know they will be off the radar of big international passive funds in such a situation.

Published in Dawn, The Business and Finance Weekly, April 8th, 2019