The Pakistan Stock Exchange (PSX) soared to a new high above 57,000 points on Thursday, fueled by investor optimism following a staff-level agreement with the International Monetary Fund (IMF) on the first review of the $3 billion stand-by arrangement.
The KSE-100 Index, the benchmark index of the PSX, touched an intraday high of 57,110.62 points and closed at 57,059.19 points, up 0.67% from the previous day's close.
The bullish trend highlights the growing attractiveness of the PSX compared to the real estate sector, which has witnessed stagnation and even price declines in some cases. This over-investment in properties, considered a safe haven amid economic turmoil, has been a major factor hindering growth in other sectors.
The rising stocks are also expected to discourage investment in safe haven currencies like the dollar and assets like gold.
Pakistan has one of the lowest rates of stock market participation in the world, partly due to the perceived ease of earning profits through real estate, gold, and the dollar. This mindset has led to a neglect of manufacturing, research, and innovation, which are crucial for long-term economic development.
Investment in the stock market will not only benefit individual investors but also encourage listed companies to expand their businesses, creating new job opportunities and alleviating the rising unemployment rate.
Despite the record-high inflation and interest rates that have battered Pakistan's economy, the PSX's upward movement suggests that investors may be anticipating a correction through profit-taking. However, some analysts believe that the KSE-100 Index could reach new highs between 58,000 and 60,000 points.
The future direction of the market will depend on investors' perception of the future and whether they believe share prices will continue to climb, given that they are still undervalued compared to their 2017 peak.
Local investors are optimistic that there will be no further interest rate hikes due to easing inflation and the positive outcome of the IMF talks. The successful first review of the IMF program is expected to pave the way for the privatization of state-owned enterprises (SOEs), which is a key requirement under the agreement.
Islamabad has already implemented the IMF's demands, including raising fuel, power, and gas prices while slashing subsidies, to reduce the fiscal deficit. Privatizing loss-making SOEs is the next step in this process.
Other factors contributing to the recent stock market rally include improved macroeconomic indicators, measures to control smuggling through the Afghan Transit Trade, and the strong performance of the agriculture sector, which has seen bumper rice and cotton crops.
