PSX Hits Historic High with 7.6% Surge

December 8, 2024 Mahi Bukhari

In a remarkable display of market strength, the Pakistan Stock Exchange (PSX) experienced a historic surge, with the KSE-100 index reaching an all-time high of 109,054 points. This represented a significant 7.6% weekly gain, marking an increase of 7,697 points. The rally was driven by a combination of improving macroeconomic indicators and sectoral growth, with key sectors such as cement, oil, banking, and fertilizer stocks contributing to the upward momentum.

Key Drivers of the Bullish Market

The positive movement in the stock market can be attributed to several critical economic developments that unfolded over the week:

Inflation Easing: One of the main catalysts for the market’s surge was the easing of inflation to a 4.9% rate, the lowest level since April 2018. This provided investors with optimism that further monetary policy easing by the State Bank of Pakistan (SBP) could follow.
Saudi Arabia’s Financial Support: In a significant boost to Pakistan’s financial position, Saudi Arabia extended its $3 billion deposit to Pakistan’s State Bank for another year, providing crucial support to the country’s foreign reserves and reinforcing investor confidence.
Government Auctions and Petroleum Sales: Pakistan’s Ijarah Sukuk auction raised Rs353 billion, falling slightly short of the target but still contributing positively to the country’s fiscal health. Additionally, petroleum sales surged to a 25-month high, hitting 1.58 million tons in November, further bolstering market sentiment.
Macroeconomic Improvements: Other factors, including a reduction in the trade deficit, which fell 7.4% year-on-year to $8.65 billion, along with improvements in the banking sector’s advances-to-deposit ratio (ADR), all contributed to the market’s optimism.

PSX Performance: A Detailed Look at the Week

Day-by-Day Movement

The week’s trading began with a surge of over 1,900 points, bringing the index to 103,275. This was propelled by the release of the November inflation data, which showed a decline to 4.9% YoY, sparking hopes that the SBP might lower its policy rate in the coming months.

Record Trading Volumes

As the week progressed, the PSX continued to break records, with traded volumes reaching their highest levels in 18 years. The market saw average daily trading volumes of 1.68 billion shares, a 72% week-on-week (WoW) increase. This surge in volume coincided with a substantial increase in traded value, which reached $198 million, a 49% WoW rise.

Sector-Wise Performance: The Key Drivers

Cement Sector

The cement sector stood out with cement dispatches climbing 6% year-on-year, totaling 4.15 million tons. This growth reflected continued strength in the construction sector, fueled by public and private sector investments. Key companies in the sector, such as Lucky Cement and DG Khan Cement, saw significant gains.

Oil & Gas Sector

The oil and gas exploration sector was another major contributor to the index’s rise, benefiting from both strong international crude prices and positive domestic exploration news. Mari Petroleum and OGDC were among the top performers in this sector.

Banking Sector

The banking sector also saw robust performance, with banks benefiting from favorable economic indicators such as rising interest rates and the growth in advances-to-deposit ratios. Leading banks, including UBL, Meezan Bank, and HBL, posted strong gains.

Fertilizer Sector

The fertilizer sector contributed significantly, with key players like Engro Fertilizer and Fauji Fertilizer driving the sector’s performance. The fertilizer sector’s growth was fueled by favorable agricultural conditions and an overall improving macroeconomic environment.

Foreign Investment Trends and Market Sentiment

Foreign Selling vs Local Buying

Despite the surge in the market, foreign investors continued to offload shares, with net foreign selling amounting to $12.2 million. This selling was somewhat offset by local buying, particularly from mutual funds and banks. The local buying sentiment reflected strong domestic investor confidence in Pakistan’s economic recovery.

Record Daily Trading Volumes

The week’s trading volumes reached new heights, with average daily volumes touching 1.68 billion shares, marking a 72% increase from the previous week. The overall traded value also saw a significant rise, hitting $198 million, a 49% week-on-week increase, signaling strong investor interest.

The Role of Saudi Arabia’s Support

Saudi Arabia’s Extended Deposit

The extension of Saudi Arabia’s $3 billion deposit with the State Bank of Pakistan (SBP) for another year played a crucial role in stabilizing Pakistan’s foreign exchange reserves. This decision not only provided support to Pakistan’s balance of payments but also helped bolster market sentiment, reducing investor concerns over currency volatility.

Formalization of Contracts with Saudi Arabia

In addition to the deposit extension, Pakistan formalized $560 million worth of contracts with Saudi Arabia, further cementing the financial relationship between the two countries. These contracts were a part of a broader $10 billion investment package that is expected to provide significant support to Pakistan’s economy in the coming years.

What’s Next for PSX? Market Outlook

Expectation of Rate Cuts

As the SBP prepares to announce its monetary policy in mid-December, market participants are anticipating a possible rate cut. Analysts predict that the continued decline in inflation, combined with favorable macroeconomic data, could prompt the central bank to further ease its stance.

Continued Local Buying Momentum

The PSX is expected to continue its positive momentum in the coming weeks, driven by local buying and optimism surrounding economic stability. Investors will be closely watching key events, including the monetary policy meeting and further macroeconomic data releases.

FAQs

1. What caused the PSX’s historic surge this week?

The rally was driven by improved macroeconomic indicators, including lower inflation, strong performance in key sectors such as cement, oil, banking, and fertilizer, and continued support from Saudi Arabia.

2. What sectors contributed most to the KSE-100’s gains?

The cement, oil and gas, banking, and fertilizer sectors were the key drivers, with major contributors including Mari Petroleum, Engro Corp, and UBL.

3. How did Saudi Arabia’s financial support affect the market?

Saudi Arabia’s decision to extend its $3 billion deposit for another year provided significant stability to Pakistan’s foreign exchange reserves and boosted investor confidence in the stock market.

4. What was the impact of foreign selling on the market?

Despite $12.2 million in foreign selling, the market continued its upward trajectory due to strong local buying, particularly from mutual funds and banks.

5. What can investors expect from the PSX in the coming weeks?

With the anticipation of rate cuts and continued positive economic indicators, the PSX is expected to maintain its bullish momentum, attracting local investors and sustaining the growth trend.