PSX defies political chaos | Political Economy

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Evidence of resilience of Pakistan’s financial markets; The Pakistan Stock Exchange has once again proved that economic dynamism can triumph over political uncertainty. This week’s market performance reads like a financial thriller, with dramatic twists that kept investors on the edge of their seats.

The PSX faced a significant headwind when political protests by the Pakistan Tehreek-e-Insaaf threatened to derail the market’s momentum. Tuesday saw a nerve-wracking dip that could spell disaster for investor confidence. However, in a remarkable display of market strength, there was a spectacular recovery on Wednesday that took financial analysts and investors by surprise.

The benchmark KSE-100 index made an impressive comeback, not only recovering from the previous day’s losses but boldly crossing the 99,000-point barrier. It broke the psychologically important 100,000 mark on Thursday. This extraordinary flexibility highlights the sophisticated nature of Pakistan’s capital markets, which demonstrate the ability to quickly readjust and adapt to rapidly changing political scenarios.

Market watchers are buzzing with optimism. The week’s events underscore a powerful message: Pakistan’s economic capacity is strong, capable of absorbing shocks and emerging stronger regardless of short-term political disruptions.

The week began on Monday with cautious optimism, as investors were initially positive despite PTI’s ‘ultimate call’ for a march in the federal capital for the release of party founder Imran Khan. However, market sentiment changed sharply as reports of clashes between protesters and law enforcement emerged.

Despite the mid-day volatility, the market managed to close in positive territory, successfully crossing the 98,000-point threshold. This initial stability set the stage for the next day’s dramatic ups and downs.

The market saw a significant correction on Tuesday, with the KSE-100 index falling 3,506 points due to rising political uncertainty. The sharp drop reflected investor concerns about possible widespread protests and their possible economic implications.

Market resilience was remarkably evident on Wednesday, showing a remarkable recovery after the previous day’s decline. In a historic session, the KSE-100 index gained an unprecedented 4,695 points – its highest one-day gain in its history – effectively erasing earlier losses and reflecting strong market fundamentals. is The rally eclipsed the previous record set on June 13, 2024, when the index climbed to 3,411 points in a single session.

By the end of Wednesday’s trading, the index had not only rebounded but also crossed the crucial 99,000-point threshold. This milestone restored investor confidence and fueled optimism among market participants.

“The rally continued on Thursday as the key KSE-100 index crossed the 100,000-point mark for the first time in history. The KSE-100 index showed a strong performance despite the macro-economics, the market finally reached an impressive intraday high of 100,540.29 A significant gain of 813.52 points to close at an all-time high of 100,082.77.”

The increase reflects underlying strength in market fundamentals, benefiting from factors such as strong corporate earnings, favorable macroeconomic indicators and increased investor participation. The rally also highlights renewed foreign interest and strategic buying by institutional investors, which has contributed to the market’s boost. Market watchers are closely monitoring upcoming economic data and corporate results, which may further influence the index’s momentum in the coming sessions.

“The overall market sentiment is positive, especially after the significant reduction in the policy rate, which now stands at 15 percent,” said Abid Ali Habib, PSX member and CEO of Abbas Ali Habib Securities in Karachi. According to him, the decline in fixed income has made the equity market attractive for investment.

This recent bout of equity market volatility highlights the complex interplay between political developments and market performance in Pakistan. High volatility indicates how sensitive investor sentiment is to political signals.

Habib said the market remained buoyant following IMF loan approval and improvement in macroeconomic indicators. By the end of September, the IMF board had approved a $7 billion loan to Pakistan to boost its sagging economy. The IMF announced in a statement that the three-year Extended Fund Facility (EFF) program will support ongoing efforts to strengthen Pakistan’s economy “and achieve stronger, more inclusive and resilient growth.” Emphasis has been placed on the right policies and reforms to create the conditions for this.” Board decision.

Some traders and analysts expect the benchmark KSE-100 index to touch 120,000 points by the end of the financial year in June 2025.

Inflation and interest rates have come down. Due to this, people are now shifting their investments from fixed deposits or mutual funds and putting their savings into the share markets,” Habib told TNS, adding that government papers and bonds Falling yields are helping domestic and foreign funds focus on equities, he said, adding that investors are confident of making huge returns, especially in blue-chip stocks C companies It will announce huge dividends and dividend payments by the end of 2024.

This recent bout of equity market volatility highlights the complex interplay between political developments and market performance in Pakistan. High volatility indicates how sensitive investor sentiment is to political signals. Nevertheless, the rapid recovery points to underlying confidence in the country’s economic fundamentals. This flexibility reflects the ability of investors to reassess and strategically reposition their portfolios in response to changing political dynamics.

Several key factors contributed to this quick rebound. Market analysts point to stable economic indicators, such as controlling inflation and improving foreign exchange reserves, which have boosted confidence. Additionally, continued interest from foreign investors and renewed institutional buying contributed. The market response also suggests that corporate earnings are strong and that structural economic reforms are gradually creating a sense of stability.

The KSE 100 index’s ability to withstand political turmoil underscores the growing maturity and depth of Pakistan’s capital markets. Historically, political uncertainty has increased the duration of bearish sentiment, but recent trends indicate a reversal. Investors now appear more adept at distinguishing between short-term disruptions and long-term economic prospects. This evolution reflects a market that is better equipped to deal with volatility, with more sophisticated risk management strategies and a diversified investor base.

Looking ahead, sustainable resilience will depend on factors such as policy implementation, political stability and the maintenance of positive economic trends. Although challenges remain, the rapid recovery signals strong confidence in Pakistan’s market potential, suggesting that investors see temporary political shocks as opportunities rather than obstacles.

“This is not a bubble that will burst soon,” Habib said. There has been a fundamental improvement in the economy. The inflation rate is expected to come down further. “We expect interest rates to remain in single digits till the end of the current fiscal in June,” he observed.

In a major decision, the Monetary Policy Committee of the State Bank of Pakistan implemented a substantial cut in the key interest rate on November 4. The committee cut the policy rate by 250 basis points to 15 percent. This historic move was mainly motivated by positive economic signals and inflation rates that are coming down faster than expected. The rate cut is strategically designed to strengthen macroeconomic stability and potentially stimulate economic activity in the country.

Investors and analysts will be keeping a close eye on both political developments and economic indicators.

Market watchers remain cautiously optimistic, expecting continued stability and potential growth, maintaining the current positive momentum and avoiding any unexpected political disruptions.

The coming days will be crucial in determining whether the KSE-100 index can stabilize above the 100,000-point mark.

The author is a senior journalist, currently working as a Development Communication Professional in Karachi.