The Pakistan Stock Exchange (PSX) continues bearing the grunt of the overheated national economy as the import bill continues swelling and commodity prices keep spiking in the international markets.
As a result, economic concerns are getting aggravated leading to the benchmark KSE-100 Index dropping 10% (or 4,897 points). The index fell to a six-month low level of 43,829 points while wiping out 17% market capitalization over the past four months to hit $45 billion on Monday.
As per the data from PSX, the index was standing at a four-year high level of 48,726 points in June of this year with market capitalization amounting to $54 billion owing to the government’s pro-growth policies and business-friendly budget.
Experts are of the opinion that the successful completion of Pakistan’s talks with the International Monetary Fund (IMF) pertaining to the recommencement of the previously derailed $6 billion loan program will significantly contribute to stabilizing the market.
CEO of Topline Securities Muhammad Sohail tweeted on Monday, “Pakistan’s stocks are falling…(despite) record earnings growth of 60% last year (FY21).”
Talking about the market capitalization peaking at $100 billion as the KSE-100 index hit a record high of nearly 53,000 points in 2017, he said, “Fear of foreign selling, falling Pakistani rupee and rising interest rate (has made the market volatile)”.
Head of Research at Ismail Iqbal Securities Fahad Rauf reiterated the popular view and said, “All eyes on IMF”.
Earlier on Monday, the Index closed at 43,829 points which is the third-lowest level of the ongoing year. Fahad further explained that amidst “US exit from Afghanistan, MSCI’s downgrade of PSX, large current account deficit, rupee depreciation, price boom of global commodities and 25 basis points hike in interest rate”.
He added that the index hit its lowest level at 42,780 points at the time of Senate elections which were held in March.
PSX has experienced mounting selling pressure since June, in addition to a swelling import bill and a widening current account deficit. The import payment saw an increase of $1 billion and reached an all-time high of $6.57 billion during August of the current year in comparison to the $5.57 billion during the month of July. The import payments continued surging through September too.
The rising global commodity prices are the biggest contributor to the increasing import bill. The benchmark crude oil, Brent, touched a multiyear high at the price of $84.56 per barrel in international markets on Monday. Along similar lines, prices of coal, LNG, and food items have also surged with the resumption of global economies during the past few months. The aforementioned developments have continued to put selling pressure on PSX.
On top of it, the worsening financial crisis emerging in Afghanistan is also negatively impacting the domestic economy. Traders from both sides of the Durand line organized essential goods including food for Afghanistan via Pakistan further increasing the latter’s import bill.
To make things worse, as demand for US dollars rose to make payments pertaining to the import bill, the local currency depreciated and dropped to an all-time low at Rs171 against the greenback.
The central bank took measures to cool down the increasingly overheating economy and decided to hike up its benchmark policy rate from 7% to 7.25% during September. The tightening of the monetary policy comes after maintaining the interest rate for the last 15 months to support the economy during the pandemic.