DUNYA NEWS
Business

Pakistan stocks turn green after suffering massive early losses amid continued political uncertainty

Share market losses comes as dollar grows stronger globally

KARACHI (Web Desk) – The Pakistan Stock Exchange witnessed a volatile session on Tuesday as the benchmark KSE-100 Index first dropped over 1,400 points, or over 2 per cent, and then jumped into the green zone with a nearly 600 points gain.

This volatility is mainly rooted in the divided mandate produced by the Feb 8 elections. However, the International Monetary Fund (IMF) fuelled the selling pressure further during early trading by rejecting the tariff rationalisation formula prepared by the caretaker government.

By the time session ended, the KSE-100 Index settled at 61,226.92, representing a net gain of 161.61 points or 0.26pc.

The session started with another over 2pc decline in continuation of the trend being witnessed since Friday, which is exposing the fragile nature of Pakistan’s economy – a reflection of how political instability damages the investors’ confidence.

Before witnessing the much-wanted recovery during the ongoing session, the benchmark index had dipped to a low of 59,613.17 against the previous closing of 61,065.31.

The IMF has called for focusing on broad-based reforms, including reducing the high cost of energy, improve compliance and reduce theft and line losses.

“In our view, the proposed plan does not address the underlying problems. In particular, the circular debt neutrality of the tariff rationalisation plan is doubtful and it would place a significant additional burden on vulnerable households.”

Meanwhile, the recovery was a product of strong corporate showing, which provided some relief to the market despite the fact that the oil and gas exploration companies like PPL and OGDC – one of the best performing entities that has propelled the share prices in the previous months – remained in the red.

On Monday, the market had shed 1,878.43 points, or 2.98pc, after tumbling to 60,647.67 at one point, following a 1,200 points loss on Friday – just a day after the Feb 8 elections.

The slide at Pakistan Stock Exchange comes at a time when the country is already facing the consequences of record interest rates, which aren’t expected to come down amid the stubborn inflation thanks to rising energy tariffs and food prices.

Read more: Nikkei soars to 34-year high on chip shares, yen gets weaker as no US rate cuts boosts dollar

At the same time, the dollar is growing stronger globally as the current US inflation trend means the Federal Reserve – a guide for economies around the world – won’t go rate cuts soon. The earliest possible cut can come in May, but only if the US data supports the move.

With Pakistan expected to continue grappling with political instability even after the formation of a weak coalition government, the signs aren’t good, as the rupee is likely to weaken against the US dollar.

This market response shouldn’t be a surprise as political stability is essential for economic progress, which Pakistan has been lacking for the last few years – a trend which the business community wanted to see reversed with a clear mandate and strong government.

With all the hopes for a stable government dashed, Pakistan will now have a coalition government comprising parties that have different economic priorities and policies at a time when the country needs to tackle the vital questions including the role of state-owned enterprises, the development model to be followed and how to provide relief to the masses crushed by inflation.

At the same time, record interest rates have paralysed the economy, meaning there is no economic activity to produce employment opportunities and lead to wage hikes amid the shrinking purchasing power.

Pakistan still awaits the release of the third and final tranche under the current IMF programme which will end on March 31, as the Washington-based top lender wants Islamabad to dispose of the lossmaking state-owned enterprises such the PIA and the Pakistan Steel Mills.

However, the coalition government will mean that there would be very little room for the future prime minister and the economic czar to fulfil the promises made with the electorates as the conflicting views of the partner parties are going to block any swift movement.

Meanwhile, more hikes in energy tariffs under the IMF pressure will going to the hurt the future government unless it comes with an effective alternative.

Recent Articles