Market snaps two-week winning streak on economic uncertainty

KARACHI: Pakistan Stock Exchange (PSX) snapped a two-week winning streak owing to the uncertainty about International Monetary Fund (IMF) programme, growing political noise, failure of the federal budget to meet investors’ expectations and several other developments, with the benchmark KSE-100 Index dropping by 602.9 points to close the week in the red.
The KSE-100 Index fell -1.44 percent from 41,904.2 points to 41,301.3 last week after gaining 551.22 points (+1.33 percent) and 388.44 points (+0.95 percent) in the preceding weeks. Among other indices, the KSE All Share Index slipped by 333.04 points (-1.18 percent) last week to 27,920.66 points from 28,253.7 points, while KMI All Share Islamic Index fell by 202.21 points (-0.97 percent to 20,487.75 points from 20,688.96 points on a week-on-week basis.
The PSX remained bearish and lacklustre throughout the week, closing all the five sessions in the red, as investors took the new budget deviating from the context of the IMF loan programme. Later in the week, IMF’s Resident Representative for Pakistan Esther Perez Ruiz said that Pakistan’s budget for the financial year 2023-24 has missed an opportunity to broaden the tax base in a more progressive way.
Adding fuel to fire, Moody’s Investors Service said that Pakistan is at an increasing risk of failing to restart its $6.7 billion bailout programme with the IMF, putting the country closer to a sovereign default. “There are increasing risks that Pakistan may be unable to complete the IMF programme that expires at the end of June,” said Grace Lim, a sovereign analyst with the ratings company in Singapore. “Without an IMF programme, Pakistan could default, given its very weak reserves.”
Responding to the IMF, Finance Minister Ishaq Dar said that global institutions want Pakistan to default like Sri Lanka and then enter negotiations. In an apparent reference to the delay in funding from the IMF, he stated, “Pakistan’s time is being wasted. We are a victim of geopolitics. The IMF has never dealt this way in the past 30 years.” However, he added that “Pakistan will receive good news by June 30.”
However, the Ministry of Finance was quick to clarify that the government is fully committed to the IMF programme and is keen to at least complete the 9th Review. “We are not “doctrinaire” about any element of the Budget FY24 and are keenly engaged with the IMF to reach an amicable solution,” said the ministry, adding the negotiations with IMF are ongoing.
The government in the new budget proposed several tax measures that are perceived as negative for the market. These measures include re-imposition of a 10 percent final withholding tax on the issuance of bonus shares by companies (20 percent for non-ATL), the reintroduction of a 0.6 percent tax on cash withdrawals for non-filers, and an increase in the super tax rate by six percentage points to 10 percent with retrospective impact.
The P/E (price-to-earning) ratio for the KSE-100 Index is currently at its lowest point in June 2023 (4.52) and has fluctuated over time, with the highest in the last 10 years was seen in 2017 (13.22), said Mattias Martinsson, founder and chief investment officer at Tundra Fonder. He stated that these market prices anticipate a collapse in profits and an economic standstill, which has yet to materialise. The significant jump in profits over the past 12 months is mainly attributed to the rupee’s devaluation.
On the other hand, the stock trading industry is facing a gradual decline as at least eight stockbrokers have applied to cancel their licenses at the PSX last week. The combination of high interest rates, political drama, economic uncertainty, government mismanagement, and an aggravated economic situation has left stockbrokers disappointed.
During the week, the Pakistani rupee depreciated against the US dollar by 26 paisas (-0.09 percent), closing at 287.19. On a positive note, the central bank’s foreign exchange reserves increased by $107 million, reaching $4.01 billion. – TLTP