Zubair Yaqoob
Karachi
As Pakistan’s stock market approached its entry into the MSCI Emerging Markets Index, investors’ jubilance and excitement soared high with the local bourse witnessing an acceleration to the level of 52,876 points in May’17.
Entry into the MSCI EM gave hopes of increased foreign investor participation. However, post entry, a bloodbath in the market initiated. Since May’17. till date, the stock market has declined a mammoth 44% in PKR terms and 63% in USD terms, with the index nose-diving to a level of 29,738 points. In hindsight, the political and economic volatility that has shaken the country has perhaps justified the hammering of the market. On the political front, the Panama case which eventually resulted in conviction of the ex-PM alongside all the political noise in the run-up to the elections all seriously dented investment sentiment.
Meanwhile, confidence in the equity market further fell prey to grave concerns on the macroeconomic front. Depleting foreign reserves owing to continuous slide of the current account balance led to heavy pressure on the local currency.
Consequently, inflationary pressure started building up calling for immediate need for proactive demand management via strict monetary tightening. Higher interest rates highlighted lucrative investment potential of risk-free fixed income instruments as opposed to the under-stress equity market.
Gradually local mutual funds aligned their holdings away from equities and into fixed income. Stringent taxation measures and controls on expenditure were introduced to put a lid on the widening fiscal deficit. Therefore, an economic slowdown was imminent and growth numbers of the economy faced, and are expected to continue facing, a sharp downturn.
