Stocks fly high, KSE-100 Index over 57,000 on the back of fruitful IMF talks
Business
The bullish trend will attract more investment in the market
KARACHI (Web Desk) – The Pakistan Stock Exchange (PSX) breached through the 57,000 ceiling in yet another first on Thursday, as the staff-level agreement reached with the International Monetary Fund (IMF) on the first review of the $3 billion stand-by arrangement boosted the investors’ confidence.
At one point, the benchmark KSE-100 Index had touched 57,549.26 but settled at 57,397.02 the session was closed, translating into a 1.26 per cent net gain, against the Wednesday’s level of 56,680.06.
The KSE-100 Index saw a total volume of over 359 million [359,247,167] shares, as Worldcall led the pack with over 385 million shares.
It means the benchmark index has surged by 40.62pc this year. However, the upward movement is even more visible since Aug 31 when the KSE-100 Index was at 45,002.42.
WHAT DOES THIS MEAN FOR THE MARKET?
The bullish trend means that the Pakistan Stock Exchange is becoming more and more lucrative for investors when compared with unproductive real estate sector, which, in some cases, has been witnessing stagnation and even a decline in prices. Various factors are responsible for this, but the main reason is overinvestment in both commercial and residential properties – considered a safe haven, especially amid the economic turmoil Pakistan is facing.
Moreover, the rising stocks will certainly also discourage investment in safe haven currencies like dollar and assets like gold.
One must recall that Pakistan has one of the worst, if not the worst, ratio of people investing in stocks when compared with the rest of the world. The reason is simple: real estate, gold and safe haven dollar provide an easy way to earn profit.
This mindset has resulted in ignoring the manufacturing as well as research and innovation – the pre-requisites for a developed and sustainable economy – both individual and institutional levels.
Investment in stock market is a great sign for Pakistan’s economy as it will also lead the listed companies to expand their businesses, creating new job opportunities amid the rising unemployment rate.
Pakistan’s economy has been battered by the record-high inflation and interest rates, which means there is very little or no economic activity that can help the people lessen the cost-of-living crisis by getting new jobs or enhanced wages.
That’s why former prime minister Nawaz Sharif on Thursday questioned how anyone could do business when the interest rate was as high as 22pc.
Read more: We are exiled for developing Pakistan: Nawaz Sharif
The ongoing upward movement is creating an impression that the market may soon witness a correction through profit-taking. But there are others who feel that the KSE-100 Index can reach new highs of somewhere between 58,000 and 60,000.
However, the developments in the coming sessions depend upon how the investors perceive the future and whether they expect the share value to climb, given the fact the stocks are still undervalued when compared with 2017 – the period which saw the market making huge gains which remained the record level till recently.
The local investors are buoyant by the expectation that there won’t be any more rate hikes given a declining inflation and a positive outcome of the IMF talks.
The reason behind the investors rooting for a successful first review by the IMF of the $3 billion stand-by arrangement was that the privatisation of the state-owned enterprises (SOEs) has been seemingly getting nearer, being one of the main conditions set under the agreement.
Islamabad has already implemented the IMF demands – ranging from hiking the fuel prices to the power and gas tariffs while slashing subsidies – which are meant to reduce fiscal deficit. Thus, the privatisation of loss-making SOEs is naturally the next stage.
Meanwhile, other factors have also contributed to the prevailing trend visible in the stock market – improved macroeconomic indicators [reduced fiscal deficit and others], the steps taken to control smuggling by regulating the Afghan Transit Trade and the strong performance shown by the agriculture sector, including bumper rice and cotton crops.
