Reasons why Pakistan’s stock market is for real
The pakistani stock market skyrocketed to 51,750 points on May 11 — an all-time and historic high on the back of rising credit ratings by international agencies, the expected June 1 listing and upgrade by the MSCI to emerging market, as well as the fact that the economy is currently on the rise.
Stocks’ growth spree did not stop there. Within 48 hours, the Pakistan stock market’s PSX 100 index shot up to 52,700 points as the market, after the weekend, opened on May 15. The present push should also be seen from the fact that a consortium of Chinese companies had purchased 40 per cent of total shares in the PSX late last year — a sign of stability and high dividends.
“As the PSX is rising uninterrupted, and the projected dividends are very high, our stocks are attracting a substantial amount of cash from individual and institutional investors belonging to the UAE and Saudi Arabia, followed by those from the US and EU in smaller amounts. But I must say the largest investment is coming from both CPEC [China Pakistan Economic Corridor]-related, banks and institutional, and other investors,” a high-ranking official of the PSX told Khaleej Times.
“At the moment, we are collating and analysing the investment data, but it will take several more days to fully identify what region, country, institutions and individuals have come into the field just now,” the official said.
The big boom is funded both by new and traditional investors. The biggest new source of investments is China. Its CPEC — or One-BeltOne-Road project — is being implemented quickly.
“Much of the cash from its $57 billion project has already spent,” Ahsan Iqbal, Minister for Planning and in-charge of the CPEC, projects told Khaleej Times.
“Just as we were talking over the phone, President Xi [Jinping] of China announced at Bejing’s Silk Route conference an additional funding of $14.5 billion for CPEC projects, which include development of big infrastructure projects, energy, electric transmission lines, motorways, railways, telecommunications, banking and financial sector entities, as well as the projected related to the modern port of Gwadar,” Iqbal said.
Just a year ago, Pakistan stock market’s KSE-100 index was at 38,777 points on June 25, 2016, after it had slowly moved up during the previous summer weeks of 2016. But what has happened in these summer months of 2017 is a real big bonanza.
What are the reasons behind the rally? And, is it backed by genuine long-term investment or fast-moving speculative cash — just a storm in the tea cup? No; the fact is that it has plenty to do with what probusiness Prime Minister Nawaz Sharif calls as his ‘Vision 2015’.
The Sharif government, since its start in mid-2013, has been moving up in the financial and economic fields slowly but steadily. It has done no marvels in reforming the administration or cutting down the cost of doing business. Sharif has also failed to wipe out the big, black spot of ongoing power shortages, and enlarge the flow of natural gas to the industry.
But, its big blessings have come
There are other big elements that give a positive spin to the Pakistan economy... [among them] a very large number of terrorists have been beaten up and peace has largely been restored
through larger production of consumer goods, especially Westernstyle packaged food. The industrial production is somewhat up — but exports are not. It means larger home-use of these products, especially textiles and modern fashion ware, as personal incomes are moving up.
Although the overall home remittances sent by Pakistanis working abroad, including those in the UAE, Saudi Arabia, the UK and the US, are somewhat down in 201617 compared to fiscal year 201516, spending by the families of overseas Pakistanis is up. This cash inflow is going into real estate buildings and purchases of new homes located from Peshawar to Karachi and from Lahore to the new Chinese-built port city of Gwadar, located just across the UAE sea line.
There are three other big elements that give a positive spin to the Pakistan economy. One, a very large number of terrorists have been beaten up and peace has largely been restored. Two, the inflation rate is slow-moving around 4.55-4.8 per cent. Three, the interest rate is a low at 5.75 per cent — the lowest in the last 43 years. It has been kept that low because the government and the State Bank of Pakistan, the central bank, wished to help the industry and business with cheap credit to help boost industrial output and the commerce and the low consumer prices.
The projected high dividends from PSX stocks, the ongoing uptick in the economy and business factors, which have been pushing stocks up, are expected to be boosted further, as more economic decisions and financial commitments are unveiled from the Silk Road Summit.