Stocks rally over 3.5pc to celebrate the new year as global markets eye rate cuts
Business
Shrugs off political uncertainty related to the polls next month
KARACHI (Web Desk) – The Pakistan Stock Exchange started the new year with a bang as the benchmark KSE-100 Index climbed over 3.50 per cent on Monday – a welcoming sign given the prevailing uncertainty related to the general elections scheduled for February 8.
By the time trading was closed for the day, the KSE-100 Index was recorded at 64,661.78 after a gain of 2,210.74 points, or 3.54pc, against the previous closing of 62,451.04 – the value recorded on Friday, Dec 29, the last working day of 2023.
With a total trading volume of more than 338 million shares for the benchmark index, the rally was sustained by oil and gas companies as well as other entities related to energy business, banks and cement manufacturers.
The rally comes as global markets are expecting to see the high interest rates reversing and betting at a likely possibility of the US Federal Reserve going for rate cut – albeit not large – in March.
It is a great sign for the investors, businesses and industries around the globe as the world’s largest economy will set a trend for the rest.
That’s why global stocks have risen and the US dollar weakened during the last two months of 2023, as US rate cuts translates into a less appealing dollar – boosting the currencies of countries like Pakistan which have been crushed by devaluation along with record inflation and interest rates.
BUT WE MAY BE AN EXCEPTION
However, things are different in Pakistan where inflation is rising yet again thanks of higher food prices and energy tariffs. With the SPI for the last week of December recorded at 43.25 on year-on-year basis, all eyes are on the consumer price Index (CPI) – inflation data – for the month, which is expected to jump when compared with November.
One may recall that the CPI in November witnessed a 29.2pc surge against all the predictions and estimates of both the government and the IMF-like international financial institutions (IFIs).
Hence, any rate cuts by the State Bank of Pakistan are conditional to the ability to arrest inflation, meaning the economy will remain a hostage of the higher interest rates for longer period than rest of the world.
ELECTION EXPECTIONS AND RESULTS
Another factor that will affect the market trajectory in the coming days and weeks is the uncertainty before the February 8 general elections, with Pakistan among many countries where polls are scheduled this year.
The investors will closely watch the outcome to see who is going to run the country and what policies they follow. Obviously, they have been awaiting privatisation of state-owned enterprises (SOEs) – a major IMF demand too – and interest rate cuts.
But everything depends upon political stability. A hung parliament after a divided mandate will make it difficult for any new elected government to pursue its manifesto. Thus, a clear majority – two-thirds would be the best option – to calm the market.
