EUR 4.64 For Business Accounts Only

Pakistan Strategy: Panamagate: Any shake-up of top-down accord will be negative

• The Panama Leaks episode is about to reach a critical juncture, with the Supreme Court expected to announce its verdict soon. While it is unlikely that the entire PML-N government will come under threat, the verdict has the potential to guide the Top-Down backdrop with possible long-lasting implications. Recent market weakness (-3.8% from peak) amidst thin volumes underscores investor anxiety on this front.

• The following scenarios appear possible: (i) decision comes in favor of defendants, (ii) decision comes against defendants and by extension the PM is disqualified from office or (iii) an independent commission is formed to investigate the PM’s complicity, with PM Sharif possibly asked to temporarily step down until the investigation completes.

• Although not exact comparisons, events in South Korea and Brazil can act as benchmarks in case the decision goes against the PM. In South Korea, from the time protests began against President Park to her impeachment proposal, the market fell 4%. In Brazil, when President Roussef was suspended, the market fell 7% within a month before rallying strongly until she was replaced six months later.