Another dull year for Pakistan stock market

Karachi: Pakistan stock market posted a slight growth during the last fiscal year after remaining in red for the previous two consecutive years, although the performance was in stark contrast to an average double-digit positive return over a decade, analysts said on Tuesday.

The benchmark KSE 100-share Index of Pakistan Stock Exchange was marginally up around two percent in FY2020. In USD terms, the KSE-100 value fell three percent during the fiscal year.

KSE posted an average gain of 19 percent in rupee and 13 percent in USD terms during the last fiscal year.

“The market has recovered since as the government eased lockdowns, with the KSE-100 index increasing by 18 percent during the 4QFY20,” said Atif Zafar, chief economist at Topline Research. “Monetary easing (reduction in policy rate by 625 basis points to 7 percent) has also lent support to the market.”

Tahir Abbas, head of Research at Arif Habib Limited said macroeconomic concerns were largely controlled before COVID-19 outbreak, especially on the external side. “However, post COVID-19 outbreak, the economy slowed down significantly amid introduction of a lockdown and overall decline in consumer spending,” Abbas said. Abbas said the highest rupee-based return during FY20 was witnessed in April when the index increased by 16.7 percent month-on-month.

“The major reason was fiscal stimulus amounting Rs1.2 trillion by the government after the corona crisis and 200 basis points reduction in the interest rates by the SBP,” he said. “The lowest rupee-based return was recorded during March (-23 percent month-on-month), which was owing to start of the pandemic alongside countrywide lockdown.” Zafar said the emergence of COVID-19 pandemic rocked the PSX like other financial markets, as the KSE-100 declined by 28 percent during the 3QFY20.

The market capitalisation of the bourse closed at Rs6.5 trillion and $39 billion, down 5 percent and 10 percent, respectively. As a result, PSX’s market capitalisation to GDP has fallen to 15 percent. The Morgan Stanley Capital International (MSCI) Pakistan Index was down 17 percent in a year versus a decline of 5 percent in MSCI Emerging Market Index and 14 percent in MSCI Frontier Market. Zafar said the overall activity at the bourse remained thin, though average traded volumes increased by 26 percent to 196 million shares/day in FY20. It still remained 10 percent lower compared to its preceding 5-year average of 219 million shares/day.

The average traded value declined by 2 percent in FY20 to $46 million/day, while also remained 51 percent lower compared to its preceding 5-year average of $94 million/day. The average traded value in ready market clocked in at Rs7.2 billion, up 13 percent and in futures market at Rs3.3 billion, up 19 percent. Foreigners for a fifth year in a row remained net sellers, with a net outflow of $277 million in the outgoing fiscal year. Individuals and Insurance were top local net buyers during the year as falling interest rates generated greater interest in equities. Banks and Mutual Funds were also sellers amongst the locals.