2018 Was a Nightmare Year for PSX [Roundup]

2018 was another nightmare year for Pakistan Stock Exchange (PSX) as it lost $26 billion in market capitalization over the 12 months.

The stock market witnessed a drop of 8.4 percent or 3,404 points in the benchmark index of KSE-100 in 2018 with record bearish trends throughout the year.

For foreign investors, Pakistani equities remained one of the worst markets in 2018 as the benchmark KSE-100 index posted its worst performance of the decade in terms of US dollars.

According to Topline Securities, the equity market continued its fall for the second year in a row, down 8 percent in 2018. This fall in two successive years was a first after a period of 22 years.

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), which was down 27 percent, and saw an erosion of more than $2 trillion worth of market value.

Factors Affecting PSX’s Trading

The falling global financial markets along with deteriorating macros affected the Karachi bourse. Moreover, investors remained skeptical due to a higher policy rate of over 400bps, over 20 percent currency devaluation, high external and fiscal deficit and delay in International Monetary Fund (IMF) program.

Due to 2018 being the year of General Elections (held in July 2018), the cloud of political uncertainty gripped the market since the beginning of the year while twin deficits (fiscal deficit settled at 6.6 percent and current account deficit settled at 6.1 percent 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 but his economic team has not been able to win the confidence of the traders and investors of stock exchange so far.

Investors’ confidence was further dented due to a delay in getting IMF bailout program to fill the external financing gap of $21-22 billion and lack of clarity over economic roadmap.

In the Semi-Annual index review of 2018, 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.

Future Outlook

It may take six months or more to cover the loss of PSX in terms of points and capitalization depending on the confidence of the investors, which is yet to be restored on the economic system and the new government’s policy.

The stock market is resilient and it could attract huge local and foreign investment again depending on the dynamics of the economy, which is in a flux particularly due to the foreign exchange reserves and Rupee’s value against US Dollar.