Muddled year for stock market
A sign of the Pakistan Stock Exchange is seen on its building in Karachi, Pakistan January 11, 2016. PHOTO: REUTERS
The Pakistan Stock Exchange (PSX) witnessed a tumultuous 365 days in 2021 as on the one hand it was classified among the best Asian bourses but on the other hand, downgraded from emerging markets to frontier markets by Morgan Stanley Capital International (MSCI).
Share prices of the top 100 companies listed at the PSX improved by a net 2% during 2021, pushing the benchmark KSE-100 index to 44,596.07 points at the close of trading on the last day of the year.
The bourse closed the year on a lacklustre note despite securing the title of second-best performing market in Asia in late January 2021.
It registered record-high volumes of 2.5 billion shares (including futures trading) in a single day in May compared to the daily average of 474 million shares recorded during the calendar year 2021.
On the flip side, the market showed the worst performance in 21 months on December 2, 2021, when the benchmark index plunged 2,135 points or 4.7%.
It came after the country’s trade deficit soared to a record high of $5 billion in November and yields on T-bills jumped suddenly, signalling an aggressive hike in the benchmark interest rate, which later proved to be true.
The market began the year on January 1 with the benchmark index at 43,755 points. It hit the year’s low at 42,780 points in March because of a spike in Covid-19 infections.
It recorded the year’s high of 48,726 points in June on the day the government presented an incentive-laden budget for the current fiscal year. The market reached that level after a gap of four years, which was last seen in June 2017.
“The market took off to a good start on a V-shaped (quick) recovery in the national economy,” remarked Arif Habib Limited (AHL) Head of Research Tahir Abbas while talking to The Express Tribune.
Read PSX likely to reach 50,000 by end-2022
The third wave of the Covid-19 pandemic in the country and concerns over the nationwide lockdown and impact on the economy did not let the market flourish after the initial good performance in late January.
The full reopening of the economy after lockdowns, increased inflow of workers’ remittances and optimism about the incentive-laden budget to support the Covid-hit economy took the market back to a four-year high in June.
The bourse, however, failed to sustain the level after global commodity prices more than doubled, pushing up the country’s imports significantly, which reached a record high of $8 billion in November.
The historic surge in imports from June 2021 onwards started consuming the country’s foreign exchange reserves. As a result, the demand for the dollar soared in the inter-bank market to pay for rising imports.
The development again sparked depreciation of the rupee against the greenback, causing inflation reading to shoot up to a 21-month high of 11.5% in November and pulling the market down by 4.7% (or 2,135 points) in a single day on December 2, 2021.
Along with that, the suspension of the International Monetary Fund’s (IMF) $6 billion loan programme since June 2021 and delay in its resumption mounted pressure on the rupee, which hit a record low of Rs178.24 on December 29, compared to the 22-month high of Rs152.27 hit in May, showing a depreciation of 17% in seven months.
Government and IMF teams reached a staff-level agreement for the resumption of the loan programme in November.
The IMF board will be presented the sixth review of the economy on January 12, 2022. Its approval will be followed by the release of the next loan tranche of $1 billion in January or February 2022.
The rupee depreciation, large import bill, significant trade and current account deficits and high inflation forced the central bank to aggressively increase the benchmark interest rate by 2.75 percentage points during October-December 2021 to 9.75%.
As usual, the high-interest rate encouraged investors to relocate their investment from risky stocks to the safer fixed deposits in banks and impacted the market performance.
Read more PSX gains 505 points on upbeat outlook
As the world enters into 2022, optimism prevails about the expansion of business and economic activities and the return of uptrend in the stock market.
Experts project a continuous downturn in global commodity prices, peaking out of the benchmark interest rate at 10% in March 2022 and return of stability to the rupee.
The local currency has recovered almost 1% (or Rs1.73) in the last two days to Rs176.51 on Friday after hitting a record low of Rs178.24 on December 29, 2021.
Besides, the foreigners were net sellers for the fifth consecutive year following the MSCI consultation in May to downgrade Pakistan to the Frontier Markets Index with effect from December 1, 2021 from the Emerging Markets Index.
AHL Research has projected that the benchmark KSE-100 index will surge 25% to 55,000 points over the next one year with inflation reading coming down to a single digit and the current account deficit shrinking to affordable ranges of $600-800 million a month from the second quarter (April-June) of 2022.
Initial public offerings
The PSX witnessed eight initial public offerings (IPOs) in 2021 after a gap of six years, helping the newly listed companies to raise a total of Rs20 billion.
“Pakistan’s market saw record offerings in 2021 where the bourse witnessed 8 IPOs (including 2 GEM board offerings), the highest after 2015,” Topline Securities reported.
Amongst these listings, Octopus Digital posted the highest return of 46% since its listing, followed by Citi Pharma, which posted a return of 5%.
On the other hand, Pak Agro and Panther Tyres posted a decline of 35% and 33% respectively, it said.
“If the macroeconomic situation in Pakistan stabilises post-resumption of IMF programme, we will continue to see new offerings in 2022,” it added.
Published in The Express Tribune, January 1st, 2022.
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