EUR 25.00 For Business Accounts Only

Pakistan Market Review 2018: Negative return in two successive years after a period of 22 years

• Pakistan market continued its fall for the second year in a row, down 8% in 2018. This fall in two successive years is after a period of 22 years. In market capitalization, Pakistan lost US$26bn in 2018.
• Falling global market financial markets along with deteriorating macros affected the Karachi bourse along. Moreover, investors remained skeptical due to 400bps+ higher policy rate, 20%+ currency devaluation, high external & fiscal deficit and delay in International Monetary Fund (IMF).
• For foreign investors, Pakistan equities remained one of the worst markets in 2018 as the benchmark KSE-100 index posted its decade’s worst performance in dollar terms, down 27% as dollar gained 26% against Pakistani Rupee.
• When comparing Pakistan’s market with global equities, KSE-100 index stood out as the world’s 5th worst performing market in 2018, as per Bloomberg (based on total return), closing the year just 1 rank above world’s second largest economy (China) whose market (down 27%) saw an erosion of more than US$2tn worth of market value.
• Due to 2018 being the year of General Elections (held in Jul 2018), the cloud of political uncertainty gripped the market since the beginning of the year while twin deficits (fiscal deficit settled at 6.6% and current account deficit settled at 6.1% of GDP in FY18) weakened any prospect of a stable economy.
• Contrary to market’s expectations, Cricketer-turned-Politician Imran Khan elected to bat as his party PTI, for the first time, won Pakistan’s General Elections (July 25, 2018), grabbing 44% seats. PTI seats were way ahead of PML-N that won 25% seats vs. 47% seats won in 2013 elections (became the ruling party).
• With clarity over political affairs, market rallied 5.3% (2,217 pts) during first 3 sessions post elections (Jul 26, 2018), which was more than 4% gain posted by the market in first 6 months of 2018.
• The biggest rally of the year was seen when Saudi’s Arabia commitment to provide US$6bn financial package (US$3bn deposit and US$3bn deferred oil payment facility) to Pakistan made headlines on Oct 23 2018, after Prime Minister Imran Khan’s successful visit to the country. In the next 8 consecutive sessions, the market gained 12% or 4,289 pts.
• However, the rally was short lived as market moved closer to Morgan Stanley Capital International’s (MSCI) Nov 2018 Semi-Annual review. In the Semi-Annual index review, Pakistan lost two (Lucky Cement & United Bank) of its 5 stocks as they were removed from MSCI Global Standard Index and demoted to MSCI Global Small Cap Index for failing to meet MSCI Emerging Market Index market capitalization requirement.
• Investors’ confidence was further dented due to delay in getting IMF bailout program to fill the external financing gap of US$21-22bn and lack of clarity over economic roadmap.