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Wednesday, June 7, 2023

Pakistan’s forex reserves surge as economy makes speedy recovery

Pakistan's stock exchange has been soaring high after the country's foreign reserves saw a surge. This comes as a direly needed recovery

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Pakistan’s foreign exchange reserves fell to a five-year low in January 2019 when they were at $6.6 billion but have now nearly doubled to $12.7 billion as of this August. Now the Forex reserves are soaring along with the stock exchange.

Pakistan’s depleting dollar reserves were one of the main challenges for the PTI when it came into power in August 2018. Within its first six months, the PTI government saw the dollar reserves down to a level that was barely enough to pay for two months of imports.

Bailout meant to cease depletion of reserves

To tackle this challenge, Prime Minister Imran Khan’s government signed a $6 billion bailout with the International Monetary Fund (IMF).

The increase in dollar reserves in fiscal year 2019-20 can be attributed to dollar inflows caused by the signing of the IMF programme, which opened more doors for Pakistan as the World Bank, ADB and AIIB also pledged support.

According to the IMF, the programme was supposed to unlock funding of $38 billion from multilateral donors.

Global equity markets also showed a positive trend, while crude oil prices moved north after reports of a drop in US crude inventories; WTI crude price surged 2.64pc to $42.80 while Brent crude price increased 2.39pc to $45.48.

Read more: PSX embraces “Naya Pakistan” with 750 point gain

“The stock market opened on a positive but selling activity made the index lose all gains posted in early trade. However, the market bounced back on reports of an increase in cement price, causing several cement stocks to hit the upper circuit,” said a report by AHL Ltd.

“The exploration & production stocks also took a cue from international crude oil prices and closed the session in green. The banking sector, on the other hand, faced resistance, which kept the pressure on stock prices.”

Last March also the stock markets had surged 

The KSE-100 Index witnessed volatility on Wednesday, marking its intraday low at 39,425.57 (-152.05 points) and intraday high at 39,940.22 (+362.60 points). It settled higher by 305.16 points at 39,882.78.

Among other indices, the KMI-30 Index gathered 995.07 points to end at 63,833.02, while the KSE All Share Index added 157.70 points, closing at 27,813.51.

The overall stock exchange volume contracted from 593.97 million in the previous session to 501.93 million (-15pc) in March this year. Average traded value also declined by 16pc, from $157.8 million to $132.5 million. Maple Leaf Cement Factory Ltd (MLCF +7.48pc) Power Cement Ltd (POWER +11.45pc) and TRG Pakistan Ltd (TRG +7.35pc) led the volume chart, exchanging 38.48 million, 37.48 million and 34.58 million shares, respectively.

Read more: IMF announces $1.4 bn loan for Pakistan: PSX goes up over 900 points

Sectors that drove the benchmark index north included cement (158.64 points), oil & gas exploration (55.22 points) and technology (35.75 points). Among the companies, Lucky Cement Ltd (LUCK 46.18 points), TRG Pakistan Ltd (TRG 35.54 points) and DG Khan Cement Company (DGKC 30.49 points) remained the top contributors to the index.

Adding 4.84pc to its total market capitalisation, the cement sector closed the session as its top gainer; Bestway Cement (BWCL 6.26pc), DG Khan Cement (DGKC 5.56pc) and Fauji Cement (FCCL 3.24pc) closed with reasonable gains.

The PSX was established on 11 January 2016 after the merger of the Karachi, Lahore and Islamabad stock exchanges.

 PSX’s origins were laid with the establishment of the Karachi Stock Exchange in 1947, the Lahore Stock Exchange in 1970 and the Islamabad Stock Exchange in 1992.

History and success of Pakistan’s stock exchange

As of 26 July 2020 there were about 540 companies listed in PSX and the total market capitalisation was ₨7.07031 trillion (US$43 billion).

The investors on the exchanges include 1,886 foreign institutional investors and 883 domestic institutional investors along with about 0.22 million retail investors. There are also about 400 brokerage houses which are members of the PSX as well as 21 asset management companies.

One of the PSX’s precursor stock exchanges, the Karachi Stock Exchange, was listed among the world’s best performing frontier stock markets: between 2009 and 2015 it delivered 26% a year. However, in 2019 Bloomberg claimed that the PSX was the ‘world’s worst’, having erased ‘half their market value’. In December 2016, PSX sold 40% strategic shares to a Chinese consortium for US$85 million.

GVS News Desk