KARACHI, March 3: Stock markets in Pakistan are unlikely to be hit by a war in Iraq, a poll of five equity strategists at brokerage firms, that trade on the Karachi Stock Exchange, revealed.

For bourses, uncertainty is recognised to be more harmful than bad news. “Sooner the war starts it would be better for the market,” says Arshad Arif, head of research at KASB & Co. Last week, stocks had plunged 129 points, but almost all of that was recovered in a single session on Monday.

Almost everyone agrees that stocks would plunge initially, with the outbreak of hostilities. There could be a drop of 100 to 200 points in first two days of the war, but afterwards, stocks would rebound. Arshad Arif explains why: “Since everyone is expecting market to behave that way, they would be waiting to pick up scrips at dips.”

Iffat Zehra Mankani, head of research at IP Securities contends that the downside on war fears had already been priced into the market on trading last week when the market had slumped heavily. Ms. Mankani says that a crash was unlikely since the circuit breakers would come into play and limit the downside. She says that unless there is a fundamental change in the economy—which is a possibility only in case of a prolonged war—stocks would remain unimpaired. Such negative situation could emerge only if inflation shoots up from expected 3.5 to 4 per cent, which would spur interest rates and impact the economy and company earnings. But that, she hastened to add, is only in case of a long drawn out war. “I don’t know much about these things, but modern wars perhaps do not last that long,” she mused.

For all that, most stock strategists, in recent weeks, have been re-balancing their portfolio to hedge against risks in case of war. “Oil and oil-related stocks are in the limelight,” says Mohammad Sohail, head of research at InvestCap Securities.

He says that in the likelihood of a surge in price of crude in the local and international markets, Oil Marketing Companies (OMCs)—PSO and Shell— are better bets as their margins are linked with oil prices. Pakistan Oilfields Limited (POL), which was once brushed aside as an illiquid share, is now in the forefront of trading activity.

“POL, which is the only oil exploration company listed on the stock exchange, is also a better hedge against increase in oil prices,” says Sohail, his reason being that the company’s profitability is directly linked to price of oil. Arshad Arif at KASB agrees that POL is more favourably placed, since its topline is liked with international oil prices.

In case of PSO and Shell, there could be inventory gains, but any change in oil prices would benefit shareholders and consumers, only if the government decides to pass on the benefit to them, say analysts. And hedging against war could be one reason that three of the four stocks posting the highest gains in trading on Monday were those of PSO, Shell and POL.

Mohammad Sohail at InvestCap says that since prices of petrochemicals have a direct correlation with crude oil prices, in case oil prices shoot up, prices of PTA, MEG, PSF, etc., would also climb. For short term, stock prices in Pakistan PTA, Dewan Salman, ICI and Ibrahim Fibres, may see some upsurge, though those stocks are not being considered attractive by medium term investors. Sohail says: “Stocks of oil refineries such as National Refinery and Pakistan Refinery may also provide a hedge in case of an Iraq war, since their performance would also be positively impacted.”

Iffat Zehra Mankani at IP Securities agrees to most of that reasoning, but says that the impact of war would reflect on the fourth quarter earnings (April-June).

Almost every analyst agrees that for quarter Jan-March, OMCs are likely to post robust earnings growth.

Wajahat Ali, research head at Taurus Securities goes with other analysts as far as the initial shock and rebound in stock prices is concerned. He is, however, loathe to agree that prices of oil- related stocks, OMCs, petrochemical, and refinery would swing higher. “It would be logical to think that way,” says Wajahat, “but since market reacts immensely more to sentiments than fundamentals, the impact will have to be— not in a few stocks— but across the board,” says he.