PAKISTAN Stock Exchange (PSX) is experiencing an unprecedented positive trend, surpassing the psychological barrier of 60,000 points during the early trading hours of Tuesday. This remarkable achievement has not only broken records but has also sparked optimism and confidence among investors. In just five months, the market has surged by an impressive 50%, reaching new heights at a pace not witnessed since 2004.
The surge in the PSX can be attributed to the confidence displayed by both rich individuals and institutional investors. These investors are making substantial new investments, fuelled by expectations of significant cuts in interest rates and the attractiveness of stocks at current low prices. The anticipation of a substantial 7% cut in the key policy rate by the SBP has further encouraged investors to make strategic moves. According to market analysts, the central bank is expected to reduce its key policy rate to 15% by December 2024, down from the current record high of 22%. This expectation is based on projections of a potential deceleration in inflation next year. The prospect of lower interest rates has led to a shift of investments from fixed-income instruments to the stock market, driving the remarkable surge in the PSX. Another contributing factor to this positive trend is the anticipation of foreign currency inflows amounting to $1.5-2 billion from multilateral creditors such as the World Bank and Asian Development Bank. This is expected to materialize soon after the IMF Executive Board approves the release of its second tranche of $700 million to Pakistan. The record-breaking performance of the PSX reflects the trust and confidence that investors have placed in the stock market. The positive sentiment is expected to persist. However, it is essential to acknowledge that political stability, among other factors, plays a crucial role in sustaining this upward trajectory. If all goes well, the market could witness sustained growth, attracting more investors and contributing to the overall economic health of the country. Despite the positive momentum, Martin Raiser, the World Bank’s Regional Vice-President for South Asia, has issued a warning. He suggests that Pakistan’s economy is stuck in a “low-growth trap” and emphasizes the need for the country to make crucial decisions for a brighter future. This cautionary note underscores the importance of addressing systemic challenges and making necessary reforms to ensure sustained economic growth.
