EDITORIAL: After heavy volatility last week, the KSE-100 finally touched the milestone of 100k mark. The current bull-run was long due, as the market did not perform to its potential since 2017 and now finally it is catching up.
The fundamental reason for the stock market leaping forward from 40k in June 2023 to 100k in November 2024 is attractive valuation. It is important to note that the initial trigger for a bullish outlook was the fact that the country had successfully averted sovereign default after securing the IMF’s Extended Fund Facility.
Lately, the economic indicators started improving and the central bank’s forex reserves slowly rising from the rock bottom of $2.9 billion in May 23; currently, the forex are at over $11 billion. Then the reversal of global commodity prices while the suppression of domestic demand has resulted in a sharp fall in inflation.
That has resulted in a sharp decline in interest rates — 3-Month Treasury bill (T-bill) rates are down from peak of 23.8 percent to 13 percent in 15 months. Historically, the KSE-100 Index’s movement is inversely related to interest rates and there is no exception this time. Another way to look at it is the KSE-30 Index, which is total price index and with all the increase, the index is less than 15 percent higher than its previous peak in 2017.
The prices are in PKR and that has moved from 104 to 278 against one USD. This implies that the rise in prices and a bullish trend are likely to continue.
However, the timings of the market moving up have to do a lot with the political scene and continuity of policies. The market witnessed grave volatile days in the last few trading sessions due to the protest by Pakistan Tehreek-e-Insaf (PTI) in Islamabad.
When a large number of people entered the federal capital, massive selling was observed on the bourse. And the very next day, after the protest ended due to strong resistance by law enforcement agencies, the market direction shifted and the index moved up again.
All the market sees is the continuity of the current regime. They are not concerned about who is running the government in Islamabad. Rather, they are focused on people at the helm in the twin cities. After the recent constitutional amendment, the punters see the leadership in Pindi to continue for the foreseeable future (eight years). This implies the strengthening of the Special Investment Facilitation Council (SIFC).
The drop scene of the PTI protest is viewed by the market participants as a committed resolve of the leadership behind the government. They are anticipating the continuity of policies driven by them.
And they are betting on it. It is now increasingly clear that they are not giving any heed to the question of legitimacy, or otherwise, of the incumbent government that came to existence following a highly controversial general election.
All they see is the present command continuing for the next eight years irrespective of the election cycle, and their active involvement in shaping, execution and continuation of policies emanating from Islamabad under the aegis of the SIFC in which it is a key stakeholder.
However, it is a risky assumption. The country is walking on a tight rope. People, especially youth, are getting charged up. They are not happy with the current government, nor are they satisfied with PTI leadership’s approach to the challenges facing the party. It is important to note that 60 percent plus population is youth.
The stock market is not worried much about this. However, the long-term investor is, and that is why perhaps there is no long-term investment in any project by local or foreign groups thus far.
Moreover, the efforts of SIFC to attract investment from friendly countries have yet to materialise. There is a growing perception in the country as well as abroad that with the impending change in the US government, Washington DC and European capitals will step up their pressure on the government to seek a resolution of current turmoil without any further loss of time.
Last but not least, it is a fact that the army has helped the government successfully quell political unrest in federal capital the other day, for which it deserves commendation, but one must not lose sight of the fact that the crisis has only been stalled; it’s far from over.
Copyright Business Recorder, 2024
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