The closing on Wednesday of the benchmark KSE 100 Index at 150,591, up over 800 points, was more a realization of a direction, for the index had been rising steadily, and on Tuesday had crossed the 100,000-mark before falling slightly back. The Pakistan Stock Exchange is bucking the regional trend, with its rise coming on the same day as the Nikkei in Japan and the Hang Sen in Hong Kong fell. The PSE is thus not benefiting from some general or regional boom, but has an inner strength which is enabling it to overcome a regional downtrend.
The uptrend is occurring because of strong institutional buying from both local and international investors, and is buoyed by improving macroeconomic indicators, most importantly rupee stability (itself the result of a number of positive developments, as well as positive corporate developments, such as Moody’s upgrade of five major Pakistani banks to Caa1 from Caa2, mirroring the sovereign upgrade and reflecting improved fiscal management under the IMF Extended Fund Facility programme. This is on top of the positive developments flowing from the trade deal with the USA, as well as a number of individual developments for corporations. Buying interest strengthened in key industries like banking, pharmaceuticals, cement, IT, automobile, and energy. While the stock exchange is not really a precise indicator of where the economy is headed, it does show what the business community thinks about where the economy is going. As all enterprises need credit, if banking stocks are rising (as they are), it can only mean that investors expect them to earn well, and thus that the economy as a whole is going to do well. The recent upgrade by ratings agencies of individual banks was perhaps more impactful than their raising of the country’s ratings, for while the latter reflected the agencies’ opinion of national economic governance, the latter reflected their opinion of the banks’ own internal governance.
The Prime Minister has expressed pleasure at the rise, and naturally ascribed it to the policies of his government and the quality of its governance. He is only partially right. On its march upwards ever since it greeted the advent of the Shehbaz government with a surge, the KSE 100 Index has undergone a number of corrections, which actually means falls. The PM never shouldered any of the blame for that. While stock market rises can reflect the whole economy, Pakistan’ is not mature enough yet.
