The Election Commission of Pakistan (ECP), the country’s electoral body, recently announced that the General/National Election will be held in the last week of January 2024. To recall, the previous Assemblies were dissolved in August 2023, and as per the constitution, the General Election should be held in less than 90 days after the dissolution of the National Assembly. However, due to the new census of 2023 and the delimitation process, which was approved on August 05, 2023, by the Council of Common Interests, this delay was expected. That’s why there was uncertainty about the General Election and its timeline.
Pakistan Stock Exchange (PSX) welcomed the Election announcement and gained 1.2% in two sessions after the timeline was announced on Thursday, Sep 21, 2023. Topline Research thinks the upcoming Election, the direction of the Pak Rupee and the IMF November review are key market drivers in the short run.
Assuming PKR remains stable after recent steps taken by the regulator, we may see local equities performing well ahead of Elections.
In the past, the KSE Index has posted an average gain of 8% four months before the elections.
PSX saw a 4-month pre-election positive rally in 3 elections (1997, 2002, & 2013) out of 5, with an average return of 17%. Interestingly, in the 2008 and 2018 elections, no positive pre-election rally was seen due to economic issues. Over the last five elections, PSX witnessed an average 4-month pre-election return of 8%.
Similarly, PSX witnessed a 3-month pre-election rally in 4 out of 5 elections (1997, 2002, 2008, & 2013) with an average return of 7%. In the 2-month pre-election period, PSX observed pre-election rallies in 3 out of 5 elections (1997, 2002, & 2013) with an average return of 7%.
We believe that the Pakistani market can potentially experience an 8-10% pre-election rally, thereby having the potential to reach nearly 50K, assuming a smooth election process and the approval of the IMF tranche in November.
Pakistan’s equity market is currently trading at a cheap PE multiple of 3.9x, and positive developments like timely & peaceful elections and subsequent power passing to the elected democratic government will improve investors’ confidence.
Courtesy – Topline Research