Pakistan’s stock market closed near an all-time high on Thursday, driven by strong foreign inflows and an improving macroeconomic outlook. The benchmark KSE-100 Index of the Pakistan Stock Exchange rose by 1.1%, finishing just below its previous peak of 81,865.10, after hitting a fresh intraday high earlier in the session. So far this year, the index has gained over 30%, bolstered by net foreign investor purchases totaling $87 million—the highest level of foreign inflows since 2014, according to data compiled by Bloomberg.
This surge has made Pakistan’s stock market one of the best performers globally in 2024. A key driver has been the country’s improved economic indicators, alongside a crucial loan agreement secured with the International Monetary Fund (IMF) in July. The country’s current account balance has shown signs of improvement, and inflation has eased, prompting the central bank to lower interest rates—further supporting investor sentiment.
However, the rally isn’t without risks. In July, Pakistan was downgraded to frontier market status from secondary emerging market by FTSE Russell, a decision set to take effect on September 23. This change may trigger portfolio adjustments by large investment firms. For instance, Vanguard Group, which manages significant investment portfolios globally, holds approximately $160 million worth of Pakistani stocks. According to Topline Securities Ltd., Vanguard is expected to reduce its holdings as the market’s new status comes into play.
Despite this, some analysts believe the market still has room for further gains, particularly in sectors like fertilizer and energy. Aqeel Karim Dhedhi, chairman of AKD Group, which operates one of Pakistan’s largest brokerage firms, remains optimistic. “Pakistan is still very undervalued for foreign investors, and we expect to see continued investments, especially following the Federal Reserve’s recent interest-rate cut,” Dhedhi said.
Analysis:
The surge in Pakistan’s stock market represents a significant opportunity for investors. The market’s gains are being fueled by foreign capital inflows, an encouraging macroeconomic outlook, and a favorable lending environment following the IMF loan deal. Foreign investors looking for high returns in emerging markets have found value in Pakistan’s relatively cheap stocks, particularly in sectors like energy and fertilizers, which remain key drivers of the country’s economic growth.
However, investors should also keep an eye on the potential downside risks. The downgrade to frontier market status could lead to some short-term volatility as major institutional investors adjust their portfolios. Additionally, geopolitical risks and domestic economic policies could impact the long-term sustainability of the market’s current performance.
For those willing to navigate these risks, the opportunity for substantial profits remains attractive. The market’s relative undervaluation compared to other global markets provides a compelling case for further investment, especially if Pakistan’s economic fundamentals continue to improve.
