With hopes high, PSX expected to rally ahead of polls

Investors believe next govt will fix faltering economy immediately

Salman Siddiqui June 19, 2018
Analysts say foreign investors should continue to return to Pakistan’s stock market since uncertainty linked with the rupee’s depreciation is almost over now. PHOTO: FILE

KARACHI: With all eyes deeply focused on forthcoming general elections, the Pakistan Stock Exchange’s (PSX) benchmark KSE 100-share Index is expected to perform better in the hope the next government will immediately fix the faltering economy.

The benchmark index recovered 3.26%, or 1,379 points, during Ramazan - May 17 to June 14 - and stood at 43,680.68 points at the end of last trading session of the fasting month.

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“There are chances of a brief pre-election rally in July if all goes well on the political front,” said Mohammad Sohail, Chief Executive Officer of Topline Securities, while talking to The Express Tribune.

The appointment of caretaker premier with consensus suggests a smooth political sailing ahead of general elections on July 25. The Election Commission is considering holding the ballot under the supervision of military that will maintain law and order inside and outside polling stations nationwide.

JS Global Capital Chief Commercial Officer Khurram Schehzad said, “PSX should recover and perform better as the confidence of investors gets better when political process is on track ie elections being held as per schedule and the new elected administration is expected to immediately start work on macro issues facing the country.”

The caretaker government is apparently making all possible efforts to run economy efficiently as swelling imports continue to mount pressure on the country’s foreign currency reserves. The reserves have shrunk significantly and stood at $10.07 billion on June 8 that covers less than two months of imports. In an effort to boost sluggish exports and slow down growing imports, the previous Pakistan Muslim League-Nawaz (PML-N) government and the current caretaker administration have let the rupee depreciate by 14.11% to Rs120.39 to a US dollar in the inter-bank market from Rs105.50 in mid-December 2017.

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The next government is highly expected to engage with the International Monetary Fund (IMF) immediately after coming to power as the country is in dire need of around $4-5 billion to fix the weakening economy.

The interim set-up, however, lacks the mandate to engage in any serious talks with the IMF, but it let the rupee weaken to deal with pressure on the exchange rate and the overall economy.

Analysts believe the stock market will continue to perform positively, but it may remain range bound in the run-up to elections. Issues like the Financial Action Task Force (FATF) preparing to put Pakistan on grey list sometime this month for alleged failure to curb terror financing may spark some selling pressure in the market.

PSX may remain “range bound with some strength”, Zeeshan Afzal of Insight Securities said.

Analysts say foreign investors should continue to return to Pakistan’s stock market since uncertainty linked with the rupee’s depreciation is almost over now. They cite the sectors that may lead possible rally which include banking, energy and fertiliser.

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The rupee’s sharp weakness may prompt the central bank to increase key policy rate sooner rather than later. If it happens, it will help banks increase their profits and make their stocks attractive for investors. Similarly, increasing oil prices in world markets and higher sales of fertilisers may make stocks of relevant companies attractive at the stock exchange.

Published in The Express Tribune, June 19th, 2018.

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