PSX’s performed negatively in FY22: But must keep future hopes alive!

Pakistan Stock Exchange (KSE-100 index) has remained one of the past best-performing markets in the region.

However, Pak stocks performed poorly during FY22 amid deep uncertainty to close at 41,541 points, down by 12.28% / 5,815 points YoY, which took the USD-based return to a negative 32.5%.

AHL Research remarked that this was the worst performing year after FY19 (-19% return).

Benchmark equity bourse generated losses on the back of various exogenous and macroeconomic indicators turning red, which changed “the sentiment of the index.”

To recall, the market had previously posted a return of 38% during FY21, the highest after FY14. Narrating the chequered history of PSX, the analysis states that pressure was exerted on the bourse by recurring waves of COVID-19, pressure on the external account, rising inflationary reading exacerbated by commodity super cycle, changes in the political leadership of Pakistan, delay in IMF approval of 6th and 7th review, and transition from an emerging market to the frontier market.

Moreover, foreign exchange reserves started depleting, with Pak Rupee losing significant ground against the USD and touching an all-time low of 211/USD in Jun ’22.

Whereas State Bank of Pakistan shifted in policy, resuming stringent monetary tightening this year (policy rate highest since Jun ’11 at 13.37% at present) in place of the aggravated outlook for Consumer Price Index.

On a negative note, we cite high international oil prices as threatening future economic growth.

Some measures in the finance bill for FY23 will translate adversely into CPI. This will augment the CAD, build pressure on the currency and keep inflation sticky.

Now investors are pinning hopes that the successful completion of talks with IMF will pave the way for inflows from other multilateral and bilateral partners as well as friendly countries, which should increase FX reserves and restrict the drop in PKR/USD parity.

Meanwhile, Pakistan’s exit from FATF’s grey list should also open up new financing avenues at attractive levels, such as issuing international bonds, which should help meet external financing requirements for FY23.

These developments and no upward movement in interest rate would bring investors’ confidence, and PSX would move northward in days to come: That’s about much of all that is hoped for.

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