1bn shares traded in single day: Pakistan Stock Exchange becomes best market in Asia

Pakistan Stock Exchange has surged, becoming Asia's best stock market as a result of interest rate cuts and a relatively quick recovery from the pandemic

Pakistan Stock Exchange

With a slew of aggressive rate cuts to support the ailing economy, Pakistan Stock Exchange has emerged as the top-performing Asian stock market since the beginning of FY21, according to a report published in Bloomberg on Wednesday.

The surge of the stock market was also catalysed by the speedy recovery of the country from the novel pandemic that still plagues its neighbours. The smart-lockdowns seem to have, for the time being, worked, the publication said.

Pakistan’s stock market hitting new highs amid a global pandemic

The Pakistani stock market has just crossed the 1billion mark for shares traded in a single day. As markets dip and dive around the world, Pakistan’s stock market shows no signs of slowing down even with Karachi battered by record breaking rains, trading is at an all-time high as Pakistan Stock Exchange continues to surge.

The new development comes at a much needed time for Pakistan as it struggles on many fronts be it protesting against the occupation of Kashmir, making sure our Kashmiri brothers are safe from harm, or solving the crisis brought upon by drowning of the financial hub of the nation. Pakistan still has a long way to go when it comes to the stock exchange market and many years before levels can be comparable to New York, Shanghai or Abu Dhabi but without a doubt it is on the correct trajectory.

KSE 100 surges 36 percent

The country’s headline index KSE 100 has surged 36 percent since the beginning of April. In comparison, Nifty has gained 33 percent while other prominent Asian markets, such as Hong Kong’s Hang Seng, China’s Shanghai Composite and Japan’s Nikkei 225, have risen 8-23 percent.

The outperformance relative to its Asian peers can be attributed to a slowdown in the rate of new infections coupled with the measures taken to boost the economy that shrank for the first time in seven decades.

Read more: Pakistan stock exchange is the only world market going upward

Experts believe that if rate cuts are maintained, the market may continue to rise higher.

Another factor at play, Pakistan equities have so far been driven largely by domestic players. Foreign investors have remained net sellers to the tune of $346 million this year, in line with the general trend witnessed in other key Asian markets, barring China Once the foreign money starts to flow into Pakistan’s equities, the market can rally further.

The smart rebound from the flash crash of March, policy rate cuts along with liquidity injection from the International Monetary Fund has prompted Dubai-based FIM Partners in July to make Pakistan its biggest exposure after the Philippines

The rebound that’s helped make Pakistan equities Asia’s best performers since the end of March isn’t done yet, according to some money managers.

The nation’s central bank has been among the most aggressive globally in cutting interest rates this year to cushion the economy amid the coronavirus pandemic. That has reduced the double-digit returns from fixed income and bolstered the bullish case for equities.

Low-interest levels driving the market

“Given the abrupt fall in interest rates, locals are still early in their re-allocation from bonds to equities,” said Ayub Khuhro, chief investment officer at Faysal Asset Management Ltd., whose assets have tripled to 35 billion rupees ($210 million) in the past year. “If rates remain at these levels for some time, they will continue to drive the market.”

Pakistan’s KSE-100 Index is up 36% from the end of March, the best rebound among major Asian equity indexes for the period. A slowdown in the rate of new infections coupled with measures to boost an economy that shrank for the first time in seven decades prompted the Dubai-based FIM Partners in July to make Pakistan its biggest exposure after the Philippines.

“I see Pakistan becoming our largest exposure in the next six months,” said Mohammed Ali Hussain, research head at FIM Partners, which manages $1.6 billion. “Even after the rebound, there’s room for re-rating assuming the macro picture remains on track,” he said. In dollar terms, the KSE-100 Index is still down more than 50% from its life-time high reached in May 2017, he said.

Next four years to be “very good” for Pakistan Stock Exchange

“I see Pakistan becoming our largest exposure in the next six months,” said Mohammed Ali Hussain, research head at FIM Partners, which manages $1.6 billion. “Even after the rebound, there’s room for re-rating assuming the macro picture remains on track,” he said. In dollar terms, the KSE-100 Index is still down more than 50% from its life-time high reached in May 2017, he said.

Read more: Coronavirus hits Pakistan Stock Exchange: Bloodbath amidst mounting fears

Tundra Fonder AB, the Stockholm-based money manager known for its early bet on Pakistan, said the nation has the largest allocation in its frontier fund.

“Covid-19 interrupted everything but our argument from July last year that the next four-five years should be very good for Pakistani equities is valid,” said Chief Investment Officer Mattias Martinsson. “Given the low foreign appetite for emerging and frontier markets, it remains to be seen if foreigners participate.”

‘Cautiously optimistic’ about Pakistan Stock Exchange

So far, overseas funds aren’t joining their local peers in buying the nation’s shares. They’ve pulled a net $346 million this year, mirroring withdrawals seen in big Asian markets excluding China.

A year after winning a $6 billion International Monetary Fund loan to fend off a balance-of-payments crisis, Pakistan sought another loan to fight the fallout of the pandemic. The nation faces the risk for a resurgence in infections, which can stall the economic recovery.

“There is a hanging sword of a second wave,” Haroon Ahmad Khan, Chief Executive Officer at Waves Singer Pakistan Ltd., a producer of fridges, washing machines and deep freezers, said at a briefing. “We are cautiously optimistic about the future.”

Stock bulls say the high volumes accompanying the rebound — the KSE-100 Index saw its highest turnover in 13 years on Aug. 13 — is a sign the rally is backed by the wider public after the 625-basis point cut in borrowing costs.

“Make hay while the sun is shining and that sun is the historically low-interest rate,” Faysal Asset’s Khuhro said. “We expect this liquidity-fueled rally to continue.”

GVS News Desk

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