Breaking highs: With 55% growth, PSX among the best performing markets

The Pakistan Stock Exchange (PSX), after hitting a three-year low in 2023, ended the year as the world’s best-performing stock market under a $3 billion International Monetary Fund (IMF) loan program, fading chances of default debt and successful completion of the first IMF review. The benchmark KSE-100 registered a 14-year high of 55%, mainly in the second half of the year, and closed at 62,451 points on Friday (Dec 29). Earlier, the market had plunged to a three-year low of 38,136 points in January amid political instability and growing economic difficulties. The growth came as foreign investors returned after a three-year hiatus with the return of stability in the rupee-dollar exchange rate. It boosted the confidence of almost all investors. The year 2023 remained an eventful, record-breaking and breaking period during which the stock market soared to an all-time high of 67,094 points in December. Its rally has been driven by optimism about the central bank’s upcoming cut in its key policy rate from a record high of 22% and significantly lower share prices compared to their peaks. In the last week of December, the market also saw its biggest drop of 2,534 points (or 4.11%) in a day due to panic selling by investors who had bought stocks with expensive borrowing. The market plunge was described as a correction after the KSE-100 rose more than 65% in the past six months to a record high of 67,094 points. In June, the index was 40,000. The index hit a 15-year one-day high, gaining 2,446 points (almost 6%) on July 3, the first trading day for the stock market after Pakistan won a $3 billion loan program from the IMF in late June. Citing data from Bloomberg, Topline Research said the PSX emerged as the best performing market in the second half of 2023 with a 51% gain in rupee terms and a 54% return in US dollar terms. For the full year 2023, the benchmark KSE-100 earned the title of the third best performing local currency market. Arif Habib Limited (AHL) reported that Pakistan’s stock market ranked 14th globally in 2023 in terms of US dollar returns. Topline Research said that “in the second half of 2023, a better-than-expected IMF stand-by agreement (SBA), followed by the successful completion of the IMF’s first assessment, a stable currency and the announcement of elections helped improve investor sentiment ». Foreign corporate investors became net buyers in 2023 after a three-year gap with net purchases of $73 million – the “highest in eight years”. In the last three years (2020-22), foreign investors had sold shares worth $1.1 billion. The sudden recovery on the PSX was complemented by a significant improvement in trading activity as average volume (ready/cash) increased by 41% to 323 million shares per day, the highest since 2021. Similarly, average trade value increased by 45% in Rs 10 billion per day in the cash market, which was also the highest since 2021. In futures, total traded volume and value per day rose 17% and 24% to 110 million shares and Rs 4.5 billion , respectively. AHL Research reported that investor confidence recovered in the second half of 2023 following the IMF’s SBA in June, leading to an increase in investment flows into the market. Backed by the IMF, the State Bank of Pakistan (SBP) received significant foreign currency financing and loan swaps from friendly countries, which boosted its foreign exchange reserves to $8.2 billion by the end of July, boosting investor interest . In addition, the establishment of the Special Investment Facilitation Council (SIFC) to attract foreign direct investment has played an important role in maintaining strong momentum. Also, administrative measures taken by the authorities aimed at curbing illicit foreign exchange flows and preventing further depreciation of the rupee boosted investor confidence. Read Institutional Market Pushes PSX Over 62k The research house recalled that the first half of calendar year 2023 saw Pakistan’s stock market facing major challenges as economic difficulties and political uncertainty led to sluggish activity. The delay in restarting the IMF program was a major factor affecting economic and market dynamics, it said in a comprehensive report. Foreign Investors Following successful negotiations on the $3 billion SBA, the stock market enjoyed increased foreign activity and inflows, in contrast to subdued conditions in the first half. The government’s initiatives to tackle the hoarding and smuggling of US dollars and the subsequent stability of the rupee further boosted foreign investor confidence. In addition, macroeconomic stability, combined with the expectation of a reversal of interest rate hikes and historically low equity valuations, played a key role in attracting foreign investment. Foreign inflows to the PSX totaled $73.3 million, the highest in eight years (CY14: $383 million). Significant overseas purchases were seen in commercial banks ($36 million), oil and gas exploration companies ($17 million) due to the revision of natural gas tariffs and the expectation of a resolution of the cyclical debt issue, and power companies ($17 million dollars). On the domestic front, offloading came from mutual funds ($132 million), banks/DFIs ($68 million) and brokers ($28 million). On the other hand, big buyers were companies ($129 million) and individuals ($28 million). Sector, stock performance The sectors that attracted the most activity on a volume basis during the year under review were led by technology and communication, followed by power, banking, refineries and cement. From the stock market, volumes were sold by WorldCall Telecom, K-Electric, Cnergyico PK, Pakistan Refinery and Oil and Gas Development Company (OGDC). In rupee terms, the biggest activity was in exploration and production, technology, banking, cement and refining sectors. From the stock market, trading values ​​were dominated by OGDC, Pakistan Petroleum, TRG Pakistan, Attock Refinery, PSO and Hubco. The sectors that contributed positively to the index were banks (7,162 points), fertilizers (2,661 points), research and production companies (2,553 points), electricity (2,470 points) and cement (2,148 points). The laggards included technology (-452 points), miscellaneous (-170 points), textiles (-10 points) and vanaspati (-9 points). From a stock-market perspective, the top contributors to the rally came from Hubco, UBL, HBL and MCB Bank. Negative contributors were TRG Pakistan, Pakistan Services and Systems Limited. PSX outperforms PSX’s benchmark KSE-100 outperformed other asset classes in 2023, including one-year Naya Pakistan certificates (+33%), US dollar (+24%), bills (+23 %) and gold (+21%). Real estate indices posted returns of 6-29%, according to Topline Research. PSX saw only one initial public offering (listing), which raised a paltry Rs 435 million. It was the lowest amount raised in a year in the last decade and a half compared to the previous record low of Rs 800 crore set in 2013. “Macroeconomic instability, coupled with the looming threat of default, cheap valuations and political uncertainty have discouraged equity investments in 2023.” AHL added that foreign markets in the region reached a whopping $30 billion by 2023. Significant purchases were made in India (nearly $21 billion), South Korea ($10 billion) and Taiwan ( $7.3 billion). Outflows were seen in Thailand ($5.5 billion), Vietnam ($1 billion) and the Philippines ($857 million). Published in The Express Tribune, December 31, 2023. Like businesses in Facebook, follow @TribuneBiz on Twitter to stay updated and join the conversation.

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