What happened to the glorious days of Pakistan Stock Market?

There was a time when Pakistan stock market declared as Asia’s best performing and the fifth best performing stock market globally, even the Bloomberg denoted Pakistan’s equity market as an “Asian tiger” besides during a single year Pakistan stock market posted substantial returns of 46%. This all come to light in CY2016. Yes! Not so long ago.

The predominant elements behind this remarkable performance considered to be the huge Chinese investment of $46 billion in various sectors to build Pak-china economic corridor (CPEC) and better performing macroeconomic indicators also played a significant role.

Moreover, in December 2016 a Chinese consortium (made up of Shanghai Stock Exchange, Shenzhen Stock Exchange, Chinese Financial Futures Exchange Company Limited, Pak-China Investment Company) signed a deal to buy 40% stake (equivalent to 320 million shares) in Pakistan stock market, this further boosted investors’ confidence and in response benchmark 100 index crossed the barrier of 50,000-point for the first time in January 2017.

In line with the expectation; during May 2017 MSCI (Morgan Stanley Capital International) upgraded Pakistan’s capital market from frontier market to “emerging market” status after a huge gap of nine years. This became the immense trigger and helped market soaring above 52 thousand psychological mark and benchmark 100 index touched its intra-day highest peak of 53,124 points on May 25, 2017. It was all good till the end of May 2017.

On the other hand panama case and eventual disqualification of former PM Nawaz sharif on July 28, 2017 triggered a severe turmoil; Investors lost their billions of rupees. In a matter of months benchmark 100 index dropped from its highest peak (52 thousand) to the level of 40,400 (end of dec’17). PSX ended up being Asia’s worst performing stock market with the negative returns of 20% in terms of dollar, more than $20 billion wiped out of market. Moreover Budget FY 2017-18 disappointed capital market.

In the meantime, 2018 was expected to be the year of recovery for the capital market but being the election year, held up market from the beginning. Benchmark index exhibited dull activity throughout the year; Rupee devaluation, hike in interest rate, falling global markets, High external deficit, IMF program negotiations and dismal economic condition kept foreign and local investors cautious and as a result capital Market exhibited a loss of $26 billion in terms of market capitalization. PSX ended up being world’s 5th worst performing market in 2018 from world’s fifth best market (during 2016) with a loss of more than 4 thousand points.

New Government’s influence in downfall Era!

Meanwhile, for the very first time PTI government came into power on August 18, 2018 (oath ceremony) benchmark 100 index was trading at 42,446 points which is currently standing at 28,764.63 points (Closing 16 August) resulting a massive loss of more than 13 thousand points in a matter of single year? Market has dropped to a five-year new low and the low volume has caused stockbrokers to simply quit! Capital market paid an extravagant price of political uncertainty and present government’s ineffective fiscal policies. The PTI’s economic team couldn’t perform and investors are gradually losing the confidence.

Even though no additional taxes were imposed on equity market during the budget for FY 2018-19 and FY 2019-20, on the contrary 5% levy on bonus shares was removed (imposed in Budget FY15) which goes in investor’s favor. Furthermore, the $3billion assistance from UAE to help the country with depleting foreign exchange crisis wasn’t good enough to gain investor sentiments, and now investors are shifting their interest towards money market.

The chart below clearly demonstrates the declining trend of KSE 100 index.

Will PSX continue to be the worst performing Market during CY2019?

Due to the worsening economic condition and immense rupee depreciation Pakistan equity market continued to post declining trend during 2019. From (January to July 2019) KSE 100 index lost almost 21% in dollar terms. Meanwhile the successful negotiation between Pakistan and IMF is expected to support Pakistan economy, as it was made clear to IMF that Pakistan would implement economic discipline.

Recently in May’19 during a meeting with stakeholders, the finance advisor Hafeez sheikh promised a market support fund. But up till now we haven’t seen any sign of it.

At present stock market is in dire need of a psychological support and it’s the high time for the government to generate and implement policies that can stabilize sinking economy and stock market or else 2019 will end up being another year of historical loss and disappointment for capital market correspondingly.