Experts predict range-bound market
Capital markets perform on the basis of economic activities, which are partially closed, leading to a range-bound market. photo: file
Pakistan’s capital markets will reopen on Wednesday after observing a longer than usual Eid holiday. During the break, Finance Minister Ishaq Dar stated that the government had fulfilled all conditions of the International Monetary Fund (IMF) to resume its $7 billion loan program.
Experts, however, predict that the markets will remain range-bound as Dar has made similar statements in the past.
Additionally, Chief of Army Staff General Asim Munir arrived in China on Tuesday for a four-day visit. The trip is being seen as highly important for Pakistan, where a worsening balance of international payment crisis continues to brew.
According to Ismail Iqbal Securities Head of Research Fahad Rauf the domestic capital markets are closely monitoring developments on the IMF, however, “The markets will remain range-bound until the program is resumed.” The lack of clarity is making traders wait on IMF’s next move before the markets perform either up or down.
Despite domestic political uncertainty reaching new heights during the holiday, the markets are expected to perform slightly positively based on developments over the weekend.
“Economic developments remain the top factor to move the markets, not political developments,” said Rauf.
Pakistan Stock Exchange (PSX) improved by 1.26%, or 508 points, to close at a five-week high of 41,008 points on the last working day before the holiday, while the domestic currency improved by 0.15%, or Rs0.42, to close at a two-week high of Rs283.47 against the US dollar. Additionally, the price of gold spiked Rs1,350 per tola (11.66 grams) and closed at Rs218,200, just a few hundred rupees shy of the all-time high hit in recent weeks.
Experts believe the cut in oil prices in international markets is a positive development for Pakistan’s economy, and could potentially bring activity to energy stocks. Despite this, the currency market is expected to remain range-bound as well, recording upticks or downticks as has been happening in the interbank market for the past several weeks.
According to Pak-Kuwait Investment Company (PKIC) Head of Research Samiullah Tariq, the developments should improve trade activities and give a positive performance at PSX on Wednesday. However, the domestic currency may face some pressure against the US dollar as the flow of workers’ remittances sent home by overseas Pakistanis is expected to slow down at the end of the holy month of Ramazan Eid holidays.
He recalled that the non-resident Pakistanis sent significantly high remittances, hitting $2.5 billion in March, due to Ramazan.
Arif Habib Limited Head of Research Tahir Abbas stated that Finance Minister Ishaq Dar’s statement was neutral for Pakistan’s capital markets. Although Dar stated that Pakistan had fulfilled all conditions, the IMF has yet to confirm this. The IMF’s chief last stated that Pakistan was required to acquire more financial commitments from friendly countries to revive the loan program. IMF has recommended arranging $6 billion funding from friendly countries to resume the program compared to the $3 billion arranged so far. However, Chief of Army Staff General Asim Munir’s visit to China carries high hopes that he may bring new funding from Beijing, which is required to resume the IMF program.
“Traders are likely to keep a close eye on reports to come from the chief’s visit to China,” said Abbas. However, capital markets will largely remain range-bound until the IMF programme is revived.
Pakistan’s foreign exchange reserves have depleted to a critically low level of $4.03 billion at present, increasing the risk of default on foreign debt repayments. The low reserves have led the government to partially ban imports, resulting in the closure of factories and rendering five million people jobless. The capital markets perform on the basis of economic activities, which are partially closed, leading to a range-bound market, said Abbas.
Published in The Express Tribune, April 26th, 2023.
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