Monthly Insights: PSX gains 16.59%, attracts $34.5 million foreign inflows in November

The Pakistan Stock Exchange (PSX) has seen a phenomenal rise of nearly 17% and the highest foreign investment in six years of $34.5 million in November 2023, indicating the strong confidence of investors in the country’s economic revival.

This was the second-highest monthly return in percentage terms in over a decade, only behind the Covid’s abnormal return in April 2020.

The surge in Pakistan’s stock market rally has been a pivotal factor in the 50 percent increase in the benchmark index since late June, making it the world’s second-best performer during this period, following Argentina.

The bullish momentum in the month was driven by the confidence of investors in the country’s economic outlook, following the $3bn Stand-by Arrangement (SBA) with the International Monetary Fund (IMF) that averted a sovereign debt default.

The expected inflows from the IMF and friendly countries, such as China and Saudi Arabia, the relatively stable currency, and the possible cut in the interest rates also boosted the market sentiment.

Highest inflows in six years

The foreign investors showed a keen interest in the Pakistani stocks, as they injected the highest amount in six years during the month. The foreign investment reached $34.5 million in November, the highest level since January 2018.

The foreign investors, mainly corporates, have shown keen interest in various sectors of the economy, such as commercial banks, cement, power generation and distribution, oil and gas marketing, and fertilizer. They have also reduced their exposure to the oil and gas exploration sector, which has been facing challenges due to lower global oil prices.

According to a brokerage firm, foreign corporations engaged in share transactions worth $66 million in November, with sales amounting to $31 million. This resulted in a net buying activity of $35 million, marking the highest monthly inflow since 2017, according to Topline Securities.

The average daily volumes and values also increased significantly, reflecting the heightened activity in the market. The KSE-100 index has gained 46.02% in the fiscal year and 49.75% in the calendar year, making it one of the top-performing markets worldwide.

However, the market may face some slowdown in the coming months, as the completion of the current IMF loan program is crucial to meet the external financing gap of around $5.3bn in the current fiscal year.

The country will also need more loan programs in the future, as its external financing requirements are projected to average $30bn annually for fiscal year 2025 to 2028.

In a related development, the Pakistani Rupee (PKR) has remained somewhat stable in the past few months, but its troubles are far from over. The inflationary pressures are expected to ease from January 2024, due to the high base effect, the lagged impact of monetary tightening, and other administrative measures.