Brokerage House Expects PSX to Rally 8-10% Ahead of Elections

With all eyes set on the upcoming General Elections in January 2024, the Pakistan Stock Exchange (PSX) is expected to rally, according to a report by Topline Securities.

Topline Securities expects that the Pakistani market can potentially experience an 8-10 percent pre-election rally thereby having the potential to reach nearly 50,000 assuming a smooth election process and the approval of the IMF tranche in November.

The upcoming election, the direction of the Pakistani Rupee (PKR), and the International Monetary Fund’s (IMF) November review are key market drivers in the short run. Assuming PKR remains stable after recent steps taken by the regulator, local equities may perform well ahead of elections.

The Election Commission of Pakistan (ECP) recently announced that General Elections will be held in the last week of January 2024.

Just to recall, the last Assemblies were dissolved in August 2023, and as per the constitution, General Elections should be held in less than 90 days after the dissolution of the National Assembly. However, due to the new census of 2023 and the delimitation process, which was approved on August 05, 2023, by the Council of Common Interests, this delay was expected. That’s why there was uncertainty about the General Elections and its timeline.

PSX welcomed the election announcement and gained 1.2 percent in two sessions after the timeline was announced on Thursday, September 21, 2023.

In the past, the benchmark KSE Index has posted an average gain of 8 percent four months before the elections. PSX saw a 4-month pre-election positive rally in 3 elections (1997, 2002, & 2013) out of 5, with an average return of 17 percent.

Interestingly, in the 2008 and 2018 elections, no positive pre-election rally was seen due to economic issues. In total, over the last 5 elections, PSX witnessed an average 4-month pre-election return of 8 percent, said the report.

Similarly, PSX witnessed a 3-month pre-election rally in 4 out of 5 elections (1997, 2002, 2008, & 2013) with an average return of 7 percent. In the 2-month pre-election period, PSX observed pre-election rallies in 3 out of 5 elections (1997, 2002, & 2013) with an average return of 7 percent. In the last months of elections, PSX experienced an average positive return of 7 percent in all 5 elections as shown in the table.

Pakistan’s equity market is currently trading at a cheap PE multiple of 3.9x and positive developments like timely and peaceful elections and subsequent passing of power to the elected democratic government will improve investors’ confidence.

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