Confused year for the stock market
The Pakistan Stock Exchange (PSX) had a tumultuous 365 day period in 2021 as, on the one hand, it was ranked among the best Asian stock exchanges but on the other hand, demoted from emerging markets to frontier markets by Morgan Stanley Capital. International (MSCI).
The stock prices of the top 100 companies listed on the PSX improved by 2% net in 2021, pushing the benchmark KSE-100 to 44,596.07 points at the close of the exchange on the last day of the year.
The stock market ended the year on a lackluster note despite obtaining the title of the second best performing market in Asia at the end of January 2021.
It posted record volumes of 2.5 billion shares (including futures trades) in a single day in May, compared to the daily average of 474 million shares recorded in calendar year 2021. .
On the flip side, the market posted the worst performance in 21 months on December 2, 2021, when the benchmark dipped 2,135 points or 4.7%.
It came after the country’s trade deficit hit an all-time high of $ 5 billion in November and yields on Treasuries suddenly rose, signaling an aggressive hike in the benchmark interest rate, which later turned out to be true.
The market started the year on January 1 with the benchmark at 43,755 points. It hit its lowest level of the year at 42,780 points in March due to a spike in Covid-19 infections.
It recorded the year’s high at 48,726 points in June, the day the government presented an incentive-laden budget for the current fiscal year. The market reached this level after a four-year gap, which was last seen in June 2017.
âThe market has got off to a good start with a (rapid) V-shaped recovery in the national economy,â Arif Habib Limited (AHL) research manager Tahir Abbas said, speaking to The Express Tribune.
Read The PSX should reach 50,000 by the end of 2022
The third wave of the Covid-19 pandemic in the country and concerns about the nationwide lockdown and impact on the economy have not let the market thrive after the initial strong performance in late January.
The complete reopening of the economy after the closures, increased worker remittances and optimism over the budget laden with incentives to support the Covid-hit economy have brought the market back to a four-year high in June.
The stock market, however, failed to maintain the level after global commodity prices more than doubled, significantly boosting the country’s imports, which reached a record high of $ 8 billion in November.
The historic surge in imports from June 2021 began to consume the country’s foreign exchange reserves. As a result, demand for the dollar has skyrocketed in the interbank market to pay for rising imports.
This move triggered the rupee to depreciate again against the greenback, pushing inflation to a 21-month high of 11.5% in November and pulling the market down 4.7% (or 2 135 points) in a single day on December 2. 2021.
At the same time, the suspension of the International Monetary Fund’s (IMF) $ 6 billion loan program since June 2021 and the delay in its recovery have increased pressure on the rupee, which hit a record high of 178.24 rupees. December 29, up from 22- The month high of Rs152.27 hit in May, showing a depreciation of 17% in seven months.
Government and IMF teams reached a staff level agreement for the resumption of the lending program in November.
The IMF’s board of directors will be presented with the sixth review of the economy on January 12, 2022. Its approval will be followed by the release of the next loan tranche of $ 1 billion in January or February 2022.
The depreciation of the rupee, the high import bill, large trade and current account deficits and high inflation forced the central bank to aggressively increase the benchmark interest rate by 2.75 percentage points in October- December 2021 at 9.75%.
As usual, the high interest rate encouraged investors to shift their investments from risky stocks to safer term deposits in banks and impacted market performance.
Read more PSX wins 505 points on optimistic outlook
As the world enters 2022, optimism prevails about the expansion of business and economic activities and the return of the bullish trend in the stock market.
Experts predict a continued decline in global commodity prices, with a peak outside the benchmark interest rate of 10% in March 2022 and a return to stability in the rupee.
The local currency has recovered nearly 1% (or Rs1.73) over the past two days to Rs176.51 on Friday after hitting a record low of Rs178.24 on December 29, 2021.
In addition, foreigners were net sellers for the fifth year in a row following the MSCI consultation in May to demote Pakistan to the Frontier Markets Index with effect from December 1, 2021 of the Emerging Markets Index.
AHL Research has forecast that the benchmark KSE-100 will rise 25% to 55,000 points over the next year, with inflation falling to single digits and the current account deficit narrowing to affordable ranges. $ 600-800 million per month compared to the second quarter (April-June) of 2022.
Initial public offerings
The PSX witnessed eight initial public offerings (IPOs) in 2021 after a six-year gap, helping newly listed companies raise a total of Rs20 billion.
âThe Pakistani market saw record bids in 2021, where the exchange recorded 8 IPOs (including 2 GEM board bids), the highest after 2015,â Topline Securities reported.
Of those listings, Octopus Digital posted the highest return of 46% since listing, followed by Citi Pharma, which posted a return of 5%.
In contrast, Pak Agro and Panther Tires recorded a drop of 35% and 33% respectively, he said.
“If the macroeconomic situation in Pakistan stabilizes after the resumption of the IMF program, we will continue to see new offers in 2022,” he added.
Posted in The Express Tribune, January 1st, 2022.
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