Equities outperform major asset classes in 2024, says brokerage report

KARACHI: In 2024, Pakistan’s stock market beat bonds, gold and the US dollar, largely due to economic reforms initiated by the IMF programme and a reduction in interest rates, which redirected local liquidity into equities, according to a report from Topline Securities released on Saturday.

These reforms address critical issues such as circular debt, governance inefficiencies and external vulnerabilities, establishing a solid foundation for a broad economic recovery.

Per the report, the benchmark KSE-100 index gained 75 per cent from January 1 to December 20, with six trading sessions remaining in the year. This figure includes dividends received during this period.

The report also highlighted gold’s performance, noting that it experienced a significant increase, marking the third-largest gain. In 2024, the price of gold rose from Rs189,386 per 10 grams to Rs234,311 per 10 grams, resulting in a profit of 24 per cent.

“Another favourite investment for local Pakistanis has been the US dollar in the last few years. In 2024 it provided a negative return of 1.0 per cent, declining from Rs282 to Rs278 in the interbank market compared to the return of 24 per cent and 28 per cent in 2023 and 2022, respectively,” it said.

“However, if this amount had been invested in a one-year term deposit at the beginning of the year, the gain would have been 1-4 per cent, assuming a return of 2-5 per cent on US dollar deposits,” it added.

The report said that many investors moved to fixed-income and low-risk avenues this year due to high interest rates. Within the fixed-income market, the average bank saving rate remained at 18 per cent, while the National Savings three-year Special Savings Certificate provided a gain of 17 per cent. Local asset management companies’ money market funds generated an average return of 19 per cent in 2024.

Similarly, holders of the Naya Pakistan Certificate under the Roshan Digital Account also earned a 22 per cent return in rupee terms.

Due to record high interest rates, investors in PIBs earned a 27 per cent gain during the outgoing year. Similarly, investors in T-Bills earned a 21 per cent gain.

Many investors also invested in the property market. The report, citing Zameen[dot]com, said prices of commercial and residential plots in Lahore declined by 11 per cent, while house prices increased by 14 per cent. However, in Karachi, prices of commercial plots declined by 10 per cent, while residential plot prices and house prices increased by 5-7 per cent.

Foreigners withdraw $20m from T-bills

Foreign investments in Pakistan’s short-term government debt securities saw an outflow during the first week of December. Analysts believe that this is normal portfolio adjustment due to year-end rebalancing by global fund managers and the maturity of some Treasury bill investments.

According to the latest data from the State Bank of Pakistan (SBP), foreign investors placed $14 million in Treasury bills until December 6, while divestments totalled $34.77 million. This resulted in a net outflow of $20.8 million, with the outflow for November recorded at $4.8 million.

Foreigners have so far purchased $866.6 million in Treasury bills, compared with withdrawals of $550 million in this fiscal year.

Despite ongoing improvements in the country’s external accounts and a stable currency, bolstered by a $7 billion loan programme from the International Monetary Fund, foreign buyers seem to find Pakistan’s local currency bonds less attractive. Moody’s recently upgraded Pakistan’s local and foreign currency issuer debt ratings from Caa2 to Caa3, reflecting enhanced macroeconomic conditions and improved government liquidity, while also changing the outlook to ‘Positive’.

The lack of interest from foreign investors in the country’s bonds appears to stem from declining returns due to monetary easing by the SBP. Earlier this week, the SBP reduced its benchmark interest rate by 200 basis points (bps) to 13 per cent, marking the fifth rate cut this year as policymakers strive to revive a sluggish economy amid falling inflation. After reaching an all-time high of 22 per cent in May and June 2024, Pakistan has seen unprecedented monetary easing, with a total rate reduction of 900bps this year.

Saad Hanif, head of research at Ismail Iqbal Securities, said that the small outflow of $20.8 million in December, particularly when compared to significant inflows in previous months, likely reflects routine portfolio adjustments rather than a lack of interest in reinvestment following earlier substantial investments.

“The outflow may also be influenced by year-end rebalancing by global fund managers and the maturity of some T-bill investments. However, the relatively minor scale suggests sustained investor confidence, supported by political stability which has likely kept T-bills attractive,” Hanif said.

“Additionally, stability in the PKR mitigated currency risk, preventing a larger outflow,” he added.