Pakistan Stock Exchange Surges Despite Political Uncertainties

November 25, 2024 Mahi Bukhari

The Pakistan Stock Exchange (PSX) has demonstrated remarkable resilience, defying political uncertainties and achieving significant gains. This performance underscores strong investor confidence and positive macroeconomic indicators, driving the benchmark KSE-100 index to new heights.

Market Resilience Amid Political Instability

KSE-100 Index Performance

The KSE-100 index surged by 1,519.24 points, or 1.55%, reaching 99,317.47 points during intraday trading. Despite ongoing political instability, investor optimism, fueled by positive corporate earnings reports and favorable macroeconomic factors, has driven the market’s recovery. The market witnessed a strong volume of 130,471,037 shares traded, reflecting robust trading activity and confidence among investors.

Historic Milestone Achieved

Earlier in the week, the PSX reached a historic milestone, crossing the 99,000-point barrier in intraday trading. Although the index retreated to around 97,800 points, it still closed at a record high with gains of over 4,500 points. This stunning rally was driven by a combination of favorable macroeconomic indicators, robust fundamentals, and high liquidity, encouraging investors to engage in extensive stock buying.

Macroeconomic Indicators and Market Drivers

Current Account Surplus and Bond Auction

Pakistan posted a current account surplus of $218 million for the first four months of FY25. Additionally, the State Bank of Pakistan (SBP) raised Rs350 billion in an auction of Pakistan Investment Bonds (PIBs), with yields falling by up to 19 basis points. These positive developments have significantly contributed to the market’s upward trajectory.

Power Generation and Economic Data

Power generation saw a 7.2% year-on-year rise to 10,262 gigawatt hours (GWh) in October 2024. For the first time in 13 months, the actual output exceeded the reference generation by 0.7%. Furthermore, day-to-day movements in the market showed a positive shift in the economic outlook, with October’s current account posting a surplus of $349 million compared to a deficit of $287 million last year.

Week-by-Week Market Analysis

Monday: New All-Time High

At the commencement of the week, the bourse hit a new all-time high of 94,996 points, buoyed by a positive shift in the economic outlook. The current account posted a surplus of $349 million compared to a deficit of $287 million last year, driving investor confidence and market gains.

Tuesday: Continued Rally

The following day, the KSE-100 index soared to another record high, reaching 96,036 points in intraday trading and closing at 95,857 points, with a gain of over 850 points. This continued rally highlighted the market’s strength and investor optimism.

Wednesday: Market Volatility

The market remained volatile on Wednesday amid political noise and profit-taking. Despite early gains, the index ended lower by 310 points, reflecting the cautious sentiment among investors due to the prevailing political uncertainties.

Thursday: Economic Data Drives Gains

Upbeat economic data drove stocks higher by 1,782 points on Thursday, as the index shattered the previous record, surging past the 97,000 mark for the first time in history. This performance underscored the market’s resilience and strong investor confidence.

Friday: Historic Milestone

On Friday, the PSX reached a historic milestone, crossing the 99,000-point mark in intraday trading before retreating amid high market activity. The benchmark KSE-100 index closed at 97,798 points, marking a sharp increase of 4,506 points, or 3.2% week-on-week (WoW).

Market Insights and Expert Opinions

JS Global Analysis

JS Global Deputy Head of Research Muhammad Waqas Ghani commented that bullish momentum continued, taking the KSE-100 index to an all-time high of 97,798 points, an increase of 3.2% WoW. Average volumes increased by 13% to 991 million shares. According to data released by the SBP, Pakistan recorded a third consecutive monthly current account surplus of $349 million in October 2024, resulting in a cumulative surplus of $218 million for 4MFY25, compared to a deficit of $1.53 billion in the same period last year.

PBS and LSM Data

The Pakistan Bureau of Statistics (PBS) reported that large-scale manufacturing (LSM) registered a 1.9% year-on-year (YoY) decrease in September 2024, marking the second straight month of negative growth. Despite the overall negative growth, notable improvements continued in many pivotal sectors, contributing to the positive market sentiment.

Banking Sector Performance

Banking sector stocks gained momentum as banks continued to work towards meeting the advance-to-deposit ratio (ADR) target. Data showed a 9% rise in the loan portfolio in October 2024, while deposits declined by 3% month-on-month (MoM). These developments have positively impacted the banking sector and overall market performance.

Government Bond Auction

In the PIB auction, the government raised Rs368 billion against the target of Rs300 billion, with cut-off yields dropping in the range of 9 to 19 basis points. This successful auction has further boosted investor confidence and contributed to the market’s gains.

AHL Research Report

AHL Research highlighted that the stock market exhibited stellar performance, reaching a historic milestone at 97,798 points. The positive momentum continued, supported by favorable macroeconomic indicators, strong fundamentals, and robust liquidity. Key developments included a current account surplus of $218 million for 4MFY25 and a 7.2% YoY rise in power generation.

Sector-wise Analysis and Foreign Investment

Sector Performance

Sector-wise, the positive contribution came from commercial banks (1,475 points), fertilizer (1,386 points), miscellaneous (112 points), pharmaceuticals (103 points), and chemicals (83 points). These sectors have shown robust performance, contributing significantly to the market’s overall gains.

Foreign Investment Trends

Foreign selling was witnessed during the week, amounting to $32.9 million compared to net selling of $10.6 million last week. Despite this foreign selling, the market maintained its upward trajectory, reflecting strong domestic investor confidence and market resilience.

FAQs

1. What factors contributed to the recent surge in the Pakistan Stock Exchange?

Several factors contributed to the recent surge, including positive macroeconomic indicators, robust corporate earnings reports, high liquidity, and strong investor confidence. The current account surplus and successful government bond auctions also played a significant role in driving the market’s gains.

2. How did political uncertainties impact the PSX?

Despite ongoing political uncertainties, the PSX showed remarkable resilience, with strong investor confidence driving the market’s performance. Positive economic data and favorable corporate earnings reports helped offset the impact of political instability.

3. What are the key sectors driving the PSX’s performance?

Key sectors driving the PSX’s performance include commercial banks, fertilizer, miscellaneous, pharmaceuticals, and chemicals. These sectors have shown robust performance, contributing significantly to the market’s overall gains.

4. How has the banking sector performed recently?

The banking sector has gained momentum as banks work towards meeting the advance-to-deposit ratio (ADR) target. Data showed a 9% rise in the loan portfolio in October 2024, while deposits declined by 3% month-on-month (MoM), positively impacting the sector and overall market performance.

5. What are the expectations for the PSX in the coming weeks?

The outlook for the PSX remains positive, with strong investor confidence, favorable macroeconomic indicators, and robust corporate earnings reports expected to drive further gains. However, ongoing political uncertainties may continue to pose challenges.

Conclusion

The Pakistan Stock Exchange’s recent performance highlights its resilience and strong investor confidence despite political uncertainties. Favorable macroeconomic indicators, robust corporate earnings reports, and high liquidity have driven significant gains in the market. With continued positive momentum and strong sector performance, the PSX is well-positioned for future growth, though political challenges may continue to influence market dynamics.