Pakistan’s stock market has demonstrated remarkable resilience by emerging as the best-performing market in Asia in 2024. According to Bloomberg, the KSE-100 index has surged by 27% in dollar terms this year, signaling a strong and promising trend for investors. This robust performance has been attributed to several key factors, including the market’s cheap valuations, high positive real rates, and a fairly valued currency.
Strategists and financial experts are optimistic about the market’s future, anticipating further gains. The recent budget proposal aimed at securing a new loan from the International Monetary Fund (IMF) has played a crucial role in bolstering investor confidence. Topline Securities Ltd and Arif Habib Ltd, prominent financial institutions in Pakistan, predict that the KSE-100 index could see an additional 10% increase by the end of the year.
One of the primary reasons behind the market’s strong performance is its attractive valuations. The KSE-100 index boasts a one-year forward earning-based valuation of 3.8 times, which is a significant 50% discount to its lifetime average. This has made the market an attractive option for investors looking for undervalued opportunities with high growth potential. Ali Hussain, Head of Research at Dubai-based Frontier Investment Management Partners Ltd, highlighted this by stating, “There’s a lot of juice left in this rally. Cheap valuations, high positive real rates, and a fairly valued currency make a very attractive case right now.”
The recently proposed budget has also been a major confidence booster for investors. The budget, designed to meet the IMF’s guidelines, includes increased taxes on industries such as cement, automobile, and steel. These measures are crucial for fulfilling the $24 billion debt payments due in the next fiscal year. Despite these fiscal challenges, the market has continued to attract foreign buying and maintain momentum.
Investor sentiment remains optimistic, with Arif Habib Ltd predicting that foreign buying, earnings growth, and robust local liquidity will sustain the market’s momentum over the next few years. Bilal Khan, Head of Institutional Equity Sales at Arif Habib Ltd, emphasized the positive outlook, stating, “With the new IMF programme spanning the next three years, we anticipate a favourable external position, supporting continued bullish market sentiment.”
Bloomberg Economics also noted the political stability in Pakistan despite concerns that the coalition government could be at risk if the Pakistan Peoples Party (PPP) withdraws due to public pressure. This stability is crucial for maintaining investor confidence and ensuring the continued growth of the stock market.
While the internal measures taken by the government and financial institutions have significantly contributed to the market’s performance, external factors such as global economic conditions and foreign investment trends have also played a role. The global investment community’s interest in emerging markets like Pakistan has been piqued by the country’s high positive real rates and undervalued currency. This interest is expected to drive further foreign investments, adding to the market’s growth momentum.
