Galloping PSX index

Even though stock market-given its manipulative vulnerabilities-is not treated as a true barometer of state of economy

The benchmark index of the Pakistan Stock Exchange looks unstoppable — having winged past the 66,000 mark on the last session of the outgoing week on Friday. The rally witnessed over the past six months has been unprecedented. From 41,401 on June 15, 2023, the PSX index has climbed to 66,223 on December 8, 2023 — a rise of 24,822 points, or nearly 60 per cent, in about six months.

Even though the stock market — given its manipulative vulnerabilities — is not treated as a true barometer of the state of the economy, it does serve as some kind of a report card on the country’s financial health and the performance of the government’s economic team. The latest rally is also being seen as a sign of revival of investors’ confidence in the government’s economic policies, significant among which are the successful signing of the IMF standby agreement and improvements in the fiscal and external accounts — something which Caretaker Prime Minister Anwaar-ul Haq Kakar also took credit for, as he addressed a ceremony at the PSX on Friday.

Still trading at a cheap price-to-earnings multiple, the market is pretty attractive for foreign investors who are taking full advantage of low valuations. The investors’ interest can be gauged from the fact that net foreign investment in the stock market between the beginning of July and the end of November has been $36 million as against only $2.5 million recorded in the preceding January-June period.

Threats, however, do exist. In the immediate term, enhanced volatility due to the steep rally is likely to cause some technical correction. And while the $700 million IMF loan tranche is pretty secured, there are apprehensions of fiscal mismanagement after the end of the ongoing IMF programme — something that can affect the stock market. Uncertainty regarding the general elections constitutes another major threat; failure to transfer power to elected representatives would surely be an unwelcome development for the high-flying index.

 

Published in The Express Tribune, December 11^th, 2023.

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