After a day of flat close, stocks jumped on Thursday, testing the 83,000 resistance level as easing inflation pressures and hopes of further interest rate cuts, coupled with improving economic indicators, prompted investors to snap up high-yielding stocks.
The benchmark KSE-100 index of the Pakistan Stock Exchange (PSX) rose 754.76 points or 0.92% to close at 82,958.73 points.
During real-time trading, the market rose by 924.94 points, or 1.13%, to reach its highest level at 82,958.73 at approximately 2:06 p.m. However, a brief period of late selling pared some of the early gains.
Khurram Shehzad, CEO of Alpha Beta Core, noted that investors are betting on the State Bank of Pakistan (SBP) expanding its tight monetary policy as inflation steadily declines.
“There are expectations of a rate cut of up to 400 basis points by December, as there is room for easing,” Shehzad said, hinting that the Bank of England’s Monetary Policy Committee may revise interest rates downward before its next scheduled meeting.
The financial analyst added that the current upward trend can largely be attributed to expectations that this marks the beginning of the central bank’s long-awaited interest rate easing cycle, which has also revived foreign interest in the country’s capital market.
Stocks rose on Wednesday, supported by lower inflation, a stable rupee and agricultural growth, with the benchmark index closing at 81,967.01 points, up 162.41 points or 0.2%.
Commenting on this sharp rise, Raza Jafri, CEO of EFG Hermes Pakistan, said that lower bond yields make stocks more attractive, especially stocks with high yields and highly leveraged stocks.
“A large portion of foreign supply has also been absorbed, giving more confidence to buyers. We expect the market to continue to rise and achieve new highs,” Jafri added.
Consumer Price Index (CPI)-based inflation fell to 6.9% year-on-year in September 2024, the lowest level since January 2021, down from 9.6% in August, driven by a higher base effect, facilitating commodity and energy markets, and a stable currency, according to the CPI. Pakistan Statistics (PBS).
Last month, the Monetary Policy Committee of the State Bank of Pakistan (SBP) cut the key policy rate by 200 basis points to 17.5% from 19.5%, citing a sharp decline in both headline and core inflation over the past two months.
Investors also gained confidence from State Bank of Pakistan Governor Jamil Ahmed’s statement that Pakistan’s foreign exchange reserves had risen to cover two months of imports, after receiving the first tranche of the IMF’s $7 billion Extended Fund Facility.
In much-needed support for the country’s financially challenged economy, the central bank received the first tranche of $1.03 billion (SDR 760 million) on Monday, September 30, 2024.
Pakistan has been working to implement conditions deemed “strict” to complete the loan program agreed in July, which Prime Minister Shehbaz Sharif has repeatedly hoped would be Pakistan’s last.
Liquid reserves now stand at $10 billion, providing much-needed stability to the country’s foreign exchange position.
Ahmed said during a banking conference: “Foreign exchange reserves have stabilized, and we expect further improvement.”
Ahmed said: “Remittances (from workers abroad) have increased, and the supply of dollars has improved,” noting that the decline in inflation has had a positive impact on monetary policy.
Meanwhile, global stocks fell with European and Asian stock indices falling broadly on Thursday, while oil prices rose further as markets assessed the risk of wider conflict in the Middle East.
Euro zone stocks recently fell 0.8%, as investors digested weak business activity survey data from the bloc, while the MSCI All Country Index also fell 0.2%.
Asia-Pacific shares outside Japan had earlier fallen 1%, largely led by Hong Kong stocks, which fell after a strong rally, while several markets, including mainland China and South Korea, were closed for the day.
Japan’s Nikkei index bucked the trend, rising 2% after newly elected Prime Minister Shigeru Ishiba said it was not the right time to raise interest rates following his meeting with central bank Governor Kazuo Ueda.