Pakistan’s burgeoning stock market rally has gained substantial momentum with the return of foreign investors, leading to a remarkable 50 percent surge in the benchmark KSE-100 Index since late June.
The nation’s stock market is now the world’s second-best performer in this period, following Argentina. Foreign traders, encouraged by signs of stability, have injected $26.3 million into Pakistani stocks in November, marking the highest monthly total in over four years, as per exchange data compiled by Bloomberg.
The rally is fuelled by positive developments, including Pakistan’s ability to secure a loan agreement with the International Monetary Fund in July, averting a potential default. With national elections scheduled for February, the country is experiencing a reduction in political and economic uncertainty.
Inflation, a key concern, has also shown signs of cooling, providing the central bank with some flexibility after implementing interest rate hikes over the past two years.
Bloomberg cited Mattias Martinsson, the Chief Information Officer at Tundra Fonder AB, a Stockholm-based frontier market investor, who noted that foreign investors are factoring in diminishing political and economic uncertainty.
“What they see now is that there appears to have come into place a sort of political stability, at the same time as economic indicators are improving and there is a strong likelihood of significant cuts in the policy rate during 2024,” Bloomberg quoted him as saying.
While the stock rally continues to attract bullish sentiment, Ali Khalpey, Head of Equity Capital Markets at EFG Hermes in Dubai, highlights Pakistan’s attractiveness compared to other emerging markets. He anticipates foreign cash inflow to persist, emphasising that Pakistani stocks like Lucky Cement Ltd., United Bank Ltd., and Habib Bank Ltd. are appealing with their cost-effectiveness, high quality, and attractive dividend yields.
Simultaneously, Pakistan’s sovereign dollar bonds are delivering robust returns, among the best in emerging markets this month, approaching 15 per cent total returns. On Wednesday, these bonds outperformed their counterparts in developing nations.