Karachi: According to a write-up on investment website ValueWalk, the Pakistan Stock Exchange (PSX) suffered its worst performance in June since 1999. It had been proclaimed the best performing stock market of 2016 in Asia with an astounding return of 46pc. The article cited that the looming election date could be blamed for the bloodbath that was experienced last month.
In anticipation of Pakistan’s re-inclusion into the MSCI emerging market index after nine years last month, the KSE-100 index had surged by 400 points at end of May to reach the level of 52,700 points. And since last month, the stock market has been devastated by a major plunge falling to the 45,000-point level yesterday. While presenting the budget for financial year 2017-18, Finance Minister Ishaq Dar had ignored the PSX recommendations and incorporated stringent tax measures on companies and investors.
In the midst of the JIT investigation into the Prime Ministers family in regard to the Panama leaks, the stock market has been rocked by political uncertainty and has suffered a fall as a result of it too. As per research released by the International Journal of Accounting and Economics Studies on the stock market fiasco, which cited that political events and performance of the PSX were closely interconnected. The research conducted into three previous elections by this think-tank revealed that political events in the country can have a significant impact on stock returns. It went onto mention that before elections in 2002 and 2008, the stock market had experienced a steep level of uncertainty in comparison to 2013 when it surged after the PML-N came into power.
The report cited that this behaviour wasn’t only limited to Pakistan, but had been witnessed in other developing nations where stock markets were open to impact by political events and changes. But the recent political uncertainty hasn’t helped the cause of the stock market as it registered a return of -2.6pc and underperformed in comparison to MSCI’s Emerging Market and Frontiers Market Indexes. Since PSX’s inclusion into the MSCI index, an outflow of $82m has been registered since the initiation of this downward trend last month, the article reported. Ironically, Pakistan had a weightage of 9pc in the Frontier Market index in comparison to 0.14pc in the Emerging Market one.
Furthermore, the situation on the external front hasn’t been that great as the current account deficit soared to $10.64b, an increase of 131pc from a year ago as per updated figures revealed by the State Bank of Pakistan on Thursday. The main reason attributable for the rise in CA deficit is because of debt servicing, plunging exports and an increase in international oil prices. The deficit has gone up from 1.8pc in FY 2015-16 to 3.8pc during first 11 months of FY 2016-17 as a percentage of GDP. And on Wednesday, the Pakistan rupee fell sharply both in the interbank and kerb market to reach a 2.5 year high of Rs108 from Rs104.91 on Tuesday which helped the stock market rally briefly.