Pakistan Stock Exchange (PSX) witnessed the highest net selling by foreign portfolio investors in 12 months, as they offloaded $35 million worth of shares in January 2024, according to Topline Pakistan Research.
The outflow came after six months of net buying by foreign corporations, who invested $75 million in PSX from July to December 2023, following the IMF deal and the caretaker government’s reforms that stabilised the Pakistani rupee (PKR) and boosted market confidence.
However, the recent sell-off was mainly driven by the liquidation of a New York-based exchange-traded fund (ETF) that had exposure to Pakistan. Global X ETFs announced on January 19, 2024, that it would close 19 of its ETFs, including the Pakistan ETF, as part of its product review process.
The Pakistan ETF had $33.23 million invested in PSX at the end of December 2023, but this amount dropped to $2.3 million by January 30, 2024, indicating that the fund was almost done with its selling spree.
Brokerage expects the PSX recovery to resume after this temporary pressure, and projects the benchmark KSE-100 total return index to reach 75,000 points by December 2024, based on low price-to-earnings (PE) multiples and without factoring in any potential re-rating amid debt sustainability risks.
The research firm also anticipates a post-election rally in line with historical trends, and identifies the smooth transfer of power to the new government, the new long-term funding program from the IMF, and the expected fall in interest rates as the key drivers of equities in 2024.
Pakistan market is currently trading at a PE of 3.7x based on 2024 estimated earnings, which is far lower than the last five-year and 10-year average PE of 6x and 8x respectively, and even lower than countries that have defaulted on external debt.
