PSX ups and downs
The Pakistan Stock Exchange has been declared as the best performing market in the region in 2018 year-to-date. Up to the first week of May, the return for CY2018 dished out by the local bourse was 10 per cent. The returns disbursed by other markets paled in comparison as most markets grew below three per cent: India and Malaysia 2.5pc and Sri Lanka 2.2pc. But this is one side of the picture. Over the last year since the KSE-100 Index hit an all-time high of 53,123 points on May 25, 2017, the Index has shed 9,267 points to close trading last week at 43,856 points. The Index managed to find a foothold and climb a bit to snap a seven day losing streak, but that still leaves the KSE-100 Index with a loss of 17pc over the course of a year, based on the average loss calculated on the 100 shares that comprise the benchmark KSE-100 Index.
The price erosion in numerous stocks over the year shows that investors have suffered greatly. The average loss on most stocks in the past year stands at an alarming 35pc - twice the loss of 17pc represented in KSE-100 stocks. Most low-priced shares have been favourites of small savers and the volume leaders on most trading days. With almost a half of their savings gone, it is the small investor who has yet again taken the brunt of the blow. But even as the PSX was striding forward in the first four months of the current calendar year, the winning streak was broken by the announcement of the federal budget on April 27.
In the new budget, Finance Minister Miftah Ismail announced a clutch of incentives and tax exemptions which the PSX had been clamouring for over the past four years. The package for the capital market was loaded with tax incentives and exemptions. The budget 201819 decreed a reduction in corporate tax by one per cent for the next five years to scale it down to 25pc by the end of financial year 2023, phasing out the currently levied super tax at three per cent for companies and four per cent for banks by one per cent every year, and restoration of the major exemption of tax at five per cent on bonus shares. At the conclusion of the budget speech, market participants showered praise on Mr Ismail for offering what they termed was a "market friendly" budget. But the market gave a cool response.
Significantly, in the seven trading sessions since the announcement of the budget, the market went on a losing streak with the KSE-100 Index poorer by 1,748 points, wiping out nearly four per cent of the year's gains. Market pundits have now started to find fault with the budget. Ignoring the massive incentives, the non-restoration of slabwise regime of capital gains tax (CGT) and the status quo on tax on cash dividends has been blamed for the market fall.
At a deeper level, investors' worries have more to do with corresponding uncertainties: the balance of payments situation and the weakened growth outlook for Pakistan by the International Monetary Fund which revised the GDP growth rate down from 5.6pc to 4.7pc for FY19. It is relevant to add here that the bounties announced in the budget were also eclipsed by investors' fear over the uncertain political atmosphere and the approach of the general elections. Although most brokerage houses downplay the politically charged atmosphere in the country, the individual and institutional investors are taking cover in risk-free investments.