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A Locked down Economy: Where Can You Invest In The Midst Of A Storm?

With the bullish trends in PSX, export growth, buoyant cement sales, and record remittances - one may contemplate now to be the best time to invest.

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The outbreak of the rampant virus bewildered the world. To subdue the spread of the invisible adversary, countries effectuated lockdowns causing the economies to plummet. Pakistan is no different. The lockdown had adverse connotations on Pakistan’s economy, with growth decelerating for the first time in sixty-eight years. invest

Where to Invest? 

However, there has been a noticeable rebound in the economy with the bullish trends in PSX, export growth, buoyant cement sales, and record remittances. Thus, one may contemplate now to be the best time to invest. But what investment alternatives are at our disposal? The prominent investment horizons include equity, bonds, gold, and real estate. Let’s have a look at the viability of each recourse.

Stock Market

PSX has outperformed other Asian markets since March in the wake of aggressive monetary easing by SBP. Pakistan has seen the largest aggregate cut in the interest rate (625 bps) since the virus has flared up.

Date Change
March 17 75 bps
March 24 150 bps
April 16 200 bps
May 15 100 bps
June 25 100 bps

 

The investors have shifted the capital from fixed-income instruments to the equities, causing an up-turn in the PSX. Consequently, the benchmark KSE-100 index spiraled roughly by 14%, the greatest monthly improvement in four years.

Read More: QBP investments surpass one billion mark despite a slow economy

KSE-100 Index

This bullish market will continue, according to Bloomberg, which says, “The rebound that helped make Pakistan equities Asia’s best performers since the end of March isn’t done yet.” Hence, the future outlook of the stock market appears ideal for investment.

Bond Market

Pakistan has a fragmented fixed-income market where bonds are either issued by the government or corporations. The bond market has not flourished like equities due to religious conservatism that prevails in the masses.

Pre-COVID, the bonds were yielding towering returns as the Monetary Policy Committee maintained the policy rate at 13.25% to counter soaring inflation. In contrast, the yields have taken a nosedive owing to discount rate adjustments by the SBP to bolster the plunging economy amid COVID.

10-year PIB

The PIBs that were grossing over 11% in March are hovering near 9% currently.

Gold invest

Gold occupies a unique cultural value in South Asian countries like Pakistan. The price of this precious metal is determined through international gold prices and exchange rates.

Besides, the gold price is also positively correlated with inflation because gold is viewed as a tool to hedge value against the price hike. It is why the gold price tends to surge during a long inflationary period. invest

The gold price skyrocketed in Pakistan owing to unprecedented devaluation and double-digit inflation. However, this rally stagnated when the exchange rate stabilized, and inflation abated in Pakistan before the lockdown. But the pandemic turned the table around.

The demand for gold augmented, and the price escalated until recently when gold slipped by $50 in the international market on August 20. This caused a drop in the gold prices locally with the 10-gram gold reducing by Rs. 2144.

The price of gold is anticipated to imitate the international prices with the exchange rate outlook stable in the coming months. But the upturn in crude oil prices could result in imported inflation, making a case for hedging again. invest

Read More: Foreign investment obliterated by pandemic: UN

Real Estate: Is now the time to invest? 

Real Estate roughly contributes to 2% of the GDP. According to the Property Post, “Real Estate in Pakistan is an important and growing sector of the economy of Pakistan. Pakistan spends $5.2 billion on construction in a year.” FPCCI state that, “Construction sector has grown by 9% which indicates its strength, but this robust sector needs the help of the real-estate sector.” invest

Amid the pandemic, Prime Minister of Pakistan- Imran Khan- announced an anomalous construction package to shore up the industry’s confidence. The salient features of the package include:

  • Subsidies of Rs 30 billion will cater to constructing the first 100,000 houses for the poor under the Naya Pakistan Housing Programme. SBP and all commercial banks will allocate 5% of their portfolio for the construction sector.
  • A National Coordination Committee on Housing Construction and Development is established to address the impediments of the stakeholders.
  • No-Objection Certificates (NOCs) will be eased out, and the provincial taxes will be reduced.
  • The government has also decided not to question the source of investment, made until the year-end.
  •  The government will exempt 90% of taxes on the construction activity related to the Naya Pakistan Housing Scheme.
  • GST has been reduced to 2% from 15%, while the WHT has been abolished.

This unprecedented package is expected to stimulate economic activities in the country. Post the package’s announcement, cement sales saw an increment of 40% year-on-year in July.

Read More: Why world economy is at the brink of collapse? Investment Banker explains

In a nutshell

Among the innumerable investment opportunities, the stock market, and real estate seem to outweigh the others due to indubitable growth anticipated in the times to come.

The writer is a former Research Enumerator at the Research Department of State Bank of Pakistan (SBP). He has worked on the bi-monthly Business Confidence Surveys of SBP, which facilitates the Monetary Policy Committee (MPC) in decision making. The views expressed in this article are the authors own and do not necessarily reflect the editorial policy of Global Village Space.

 

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