On Wednesday, shares of the Pakistan Stock Exchange (PSX) surged 900 points, breaking through the crucial 72,000 barrier for the first time, bringing bulls back to the trading floor.
The benchmark KSE-100 index increased by 854.19 points, or 1.2%, from the previous close of 71,359.40 points to 72,213.59 at 10:33 am.
Topline Securities CEO Mohammed Sohail noted that this was “another record high at the PSX” and said that institutional buying was “mainly leading the rally.”
“Investors are now anticipating a big fall in April CPI (Consumer Price Index), which may result in a cut in interest rates in coming months,” he continued, following a record current account surplus.
On Monday, the KSE-100 index broke beyond the crucial 71,000 mark.
“Improving outlook of Pakistan’s economy with expected investments from the Kingdom of Saudi Arabia, ongoing disinflation (April 2024 inflation expected at 16.8pc with policy rate of 22pc) and expected beginning of monetary easing,” stated Shahab Farooq, director of research at Next Capital Limited, as the reasons for the upward momentum.
Furthermore, he claimed that these elements, together with positive results releases, boosted investor confidence in “investing in cyclical sectors,” such as steel and cement, “along with continued interest in banks.”
“The market is rising as a result of strong corporate earnings and expectations of falling interest rates,” stated Chase Securities’ director of research Yousuf M. Farooq. “Some technical analysts anticipate a brief pause in the market’s upward trend following an extended rally,” he continued.
According to Farooq, “the market has started to factor in, to some extent, the possibility that certain sectors, especially cyclical ones, might experience significant earnings growth as the economy rebounds.”
Aside from that, Farooq noted that the day before, the one-year treasury bill dropped 49 basis points in the secondary market due to predictions of an interest rate cut, which had also “sparked excitement.”
“The prospect of declining rates makes stocks more appealing, potentially causing a shift over the next year from fixed income to equities,” he said in his explanation.
According to Farooq, there are still stocks that have dividend yields as high as 20 percent, and these yields may rise much higher if earnings climb.
On the other hand, there is a large reinvestment risk associated with investments in government securities. Choosing a one-year T-bill might lock in a significantly lower rate when the existing bond matures, he pointed out.
