‘Meteoric rise’ — Pakistan Stock Exchange’s movement through 2024

The last two years were tough for the Pakistani stock market. The country was going through one of its worst economic crises, it came close to the risk of default, and the interest rate was at a record high, drawing investors away from it to fixed-income high-return investments.

The first week of this year saw the stock market closing at 64,515 points. However, things started turning around in March as Pakistan neared the completion of a nine-month Standby Agreement with the International Monetary Fund (IMF).

The country’s economic outlook also started improving as talks began with the IMF on another Extended Fund Facility (EFF). The stock market crossed the 80,000-points mark in July after the country reached a deal for a 34-month-long EFF, amounting to $7 billion.

The deal with the IMF also unlocked inflows from other multilateral and bilateral lenders, including the Asian Development Bank, Asian Infrastructure Development Bank, and International Islamic Trade Finance Corporation.

Meanwhile, Pakistan’s key macroeconomic indicators were improving amid the government's intense focus on implementing reforms agreed upon with the IMF. The country reported a current account surplus in two of the first three months of fiscal year 2024-25 (FY25), narrowing the current account deficit to 92% in the first quarter compared to the same period in the previous year.

Remittances increased by 39% in the quarter, foreign exchange reserves rose to a two-year high of $11.15 billion as of Oct 31, the the exchange rate remained stable, inflation came down to multi-year lows, and interest rate came down to 17.5%.

Moreover, the Pakistani stock market had been trading at cheap valuations for quite some time. In simple words, this means that the stocks were undervalued because of the weak economic outlook. But as the outlook improved, share prices (and the stock market) went up.

Investor sentiment has only improved since then as credit rating agencies upgrade Pakistan’s status, assurances of more finances are made, economic indicators continue to improve, and the central bank likely cuts the interest rate further.

Moreover, recent political certainty after the government finally managed to get the 26th Constitutional Amendment passed has also helped bolster investor sentiment.

If this trajectory continues, the KSE-100 may well cross the 100,000-points mark before the year is over.