testament to the resilience of Pakistan’s financial markets; the Pakistan Stock Exchange has once again proven that economic dynamism can triumph over political uncertainty. This week’s market performance reads like a financial thriller, with dramatic twists that kept investors on the edge of their seats.

The PSX weathered a significant storm when political protests by the Pakistan Tehreek-i-Insaf threatened to derail the market momentum. Tuesday saw a nerve-wracking downturn that could have spelt disaster for investor confidence. However, in a remarkable display of market strength, Wednesday brought a stunning recovery that left financial analysts and investors in awe.

The benchmark KSE-100 Index staged an impressive comeback, not just recovering from the previous day’s losses but boldly charging past the 99,000-point barrier. On Thursday it broke through the psychologically significant 100,000 mark. This extraordinary resilience highlights the sophisticated nature of Pakistan’s capital markets, demonstrating an ability to quickly recalibrate and adapt to rapidly changing political landscapes.

Market watchers are buzzing with anticipation. The week’s events underscore a powerful message: Pakistan’s economic potential remains robust, capable of absorbing shocks and emerging stronger, regardless of short-term political disruptions.

The week had began with cautious optimism on Monday, as investors initially remained positive despite the PTI’s ‘final call’ for a march on the federal capital to seek the release of party founder Imran Khan. However, the market sentiment shifted quickly as reports emerged of confrontations between protesters and law enforcement.

Despite the mid-day volatility, the market managed to close in positive territory, successfully crossing the 98,000-point mark. This initial stability set the stage for the subsequent day’s dramatic fluctuations.

Tuesday witnessed a significant market correction, with the KSE-100 Index plummeting 3,506 points due to escalating political uncertainty. The sharp decline reflected investors’ concerns about potential widespread protests and their potential economic implications.

The market’s resilience was strikingly evident on Wednesday, demonstrating a remarkable recovery after the previous day’s downturn. In a historic session, the KSE-100 Index soared by an unprecedented 4,695 points — the highest single-day gain in its history — effectively erasing earlier losses and showcasing strong market fundamentals. This rally surpassed the previous record set on June 13, 2024, when the index had climbed by 3,411 points in a single session.

By the end of Wednesday’s trading, the index had not only rebounded but also crossed the significant 99,000-point threshold. This milestone reignited investor confidence and fuelled optimism among market participants.

"The rally continued on Thursday when the key KSE-100 Index surpassed the 100,000-point threshold for the first time in the history. This unprecedented achievement comes amid investor confidence and the underlying strength of Pakistan's financial ecosystem, signalling potential economic optimism despite multiple macroeconomic headwinds. On Thursday the KSE-100 index delivered a robust performance, rocketing 1,271 points to reach an impressive intraday high of 100,540.29. The market ultimately closed at a historic peak of 100,082.77, marking a substantial gain of 813.52 points."

This surge reflects underlying strength in market fundamentals, with factors such as strong corporate earnings, favourable macroeconomic indicators and increased investor participation driving the gains. The rally also highlights renewed foreign interest and strategic buying by institutional investors, which have contributed to the market’s buoyancy. Market watchers are closely monitoring upcoming economic data and corporate results, which could further influence the index’s trajectory in the coming sessions.

“Overall market sentiment is positive, especially after a significant drop in the policy rate, which is now at 15 per cent,” said Abid Ali Habib, a member of the PSX and CEO of Abbas Ali Habib Securities in Karachi. According to him, declining fixed-income yields have made the equity market attractive for investment.

This recent bout of equity market volatility highlights the complex interplay between political developments and market performance in Pakistan. The sharp fluctuations underscore how sensitive investor sentiment is to political signals. 

Habib said that after the approval of the IMF loan and improvement in macroeconomic indicators the market was buoyant. By the end of September, the IMF board had approved a $7 billion loan for Pakistan to boost its faltering economy. The three-year extended fund facility (EFF) programme called for sound policies and reforms to support Pakistan’s ongoing efforts to strengthen its economy “and create conditions for a stronger, more inclusive and resilient growth,” the IMF had said in a statement while announcing the Board’s decision.

Some traders and analysts expect the benchmark KSE-100 index to touch 120,000 points by the end of the fiscal year in June 2025.

“Inflation and interest rate have come down. Because of that people are now shifting their investments from fixed deposits or mutual funds and putting their savings in the shares markets,” Habib told TNS, adding that the falling yields of government papers and bonds tend to help local as well as foreign funds shift focus to equities. He said that investors were confident to get heavy profits from their investment particularly in the blue chip stocks. Many companies are expected to announce heavy profits and pay dividends by the end of the year 2024.

This recent bout of equity market volatility highlights the complex interplay between political developments and market performance in Pakistan. The sharp fluctuations underscore how sensitive investor sentiment is to political signals. Yet, the rapid recovery points to an underlying confidence in the country’s economic fundamentals. This resilience reflects investors’ ability to reassess and strategically reposition their portfolios in response to shifting political dynamics.

Several key factors contributed to this quick rebound. Market analysts point to stable macroeconomic indicators, such as controlled inflation rates and improving foreign exchange reserves, which have bolstered confidence. Additionally, ongoing interest from foreign investors and renewed institutional buying played crucial roles. The market’s response also suggests that corporate earnings remain strong and that structural economic reforms are gradually instilling a sense of stability.

The KSE-100 Index’s ability to recover from political turbulence underscores the growing maturity and depth of Pakistan’s capital markets. Historically, political uncertainty has led to extended periods of bearish sentiment, but recent trends indicate a shift. Investors now appear more adept at distinguishing between short-term disruptions and long-term economic prospects. This evolution reflects a market better equipped to handle volatility, with more sophisticated risk management strategies and a diversified investor base.

Looking ahead, sustained resilience will depend on factors such as consistent policy implementation, political stability and maintaining positive macroeconomic trends. While challenges remain, the swift recovery signals robust confidence in Pakistan’s market potential, suggesting that investors view temporary political shocks as opportunities rather than deterrents.

“This is not a bubble, which may burst soon,” remarked Habib. The fundamentals have improved in the economy. It is expected that the inflation rate will come down further. “We expect the interest rate to be in single digits by the end of the current fiscal year in June,” he observed.

In a significant decision, the State Bank of Pakistan’s Monetary Policy Committee implemented a substantial reduction in the key interest rate on November 4. The committee slashed the policy rate by 250 basis points, lowering it to 15 per cent. This landmark move was primarily motivated by positive economic signals and an inflation rate that has been declining more rapidly than anticipated. The rate cut is strategically designed to bolster macroeconomic stability and potentially stimulate economic activity in the country.

Investors and analysts will be closely monitoring both political developments and economic indicators.

Market watchers remain cautiously optimistic, expecting continued stability and potential growth, contingent on maintaining the current positive momentum and avoiding any unexpected political disruptions.

The coming days will be crucial in determining whether the KSE-100 Index can consolidate above the 100,000-point mark.

The author is a senior journalist, currently working as a development communication professional in Karachi.