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Bulls stormed back onto the trading floor at the Pakistan Stock Exchange (PSX) as shares surged by over 700 points on Wednesday, breaching the significant 72,000 level for the first time.
The benchmark KSE-100 index soared by 827.36 points, or 1.16 percent, reaching 72,186.76 at 12:21 pm, marking a notable uptick from the previous close of 71,359.40 points.
Mohammed Sohail, Chief Executive of Topline Securities, hailed this as yet “another record high at the PSX,” attributing the rally primarily to “institutional buying.”
“Following a record current account surplus, investors are now anticipating a substantial drop in April’s Consumer Price Index (CPI), which may lead to a cut in interest rates in the coming months,” Sohail added.
Earlier in the week, the KSE-100 index breached the crucial 71,000 level.
Shahab Farooq, Director of Research at Next Capital Limited, credited the upward momentum to the “improving outlook of Pakistan’s economy,” fueled by expected investments from the Kingdom of Saudi Arabia, ongoing disinflation (with April 2024 inflation anticipated at 16.8 percent against a policy rate of 22 percent), and the anticipated commencement of monetary easing.
Furthermore, Farooq highlighted that these factors, coupled with robust earnings announcements, bolstered investor confidence, particularly in “cyclical sectors” such as cement and steel, along with sustained interest in banks.
Yousuf M. Farooq, Director of Research at Chase Securities, echoed similar sentiments, attributing the market’s rally to strong corporate earnings and expectations of declining interest rates. However, he cautioned that some technical analysts foresee a temporary pause in the market’s upward trajectory after an extended rally.
Farooq pointed out that the drop in treasury yields the previous day had also generated excitement, with the one-year treasury bill experiencing a significant decrease of 49 basis points in the secondary market, driven by expectations of an impending interest rate reduction.
He elaborated, “The prospect of declining rates makes stocks more attractive, potentially prompting a shift from fixed income to equities over the next year.”
Moreover, Farooq emphasized that certain stocks still offer dividend yields of up to 20 percent, which could further increase as earnings grow. Conversely, investments in government securities carry significant reinvestment risk, as opting for a one-year T-bill could potentially lock in a considerably lower rate upon maturity of the current bond.
Haseeb Abdullah
