KSE at 100,000: What does it mean for Pakistan?

The KSE-100 index – the benchmark index that seeks to measure total returns of a representative sample of stocks on the Pakistan Stock Exchange – has hit 100,000 for the first time. It is generally not a good idea to read too much into the day-to-day movements of the stock index, even when it reaches such momentous psychological levels, but one thing can be said with certainty: the optimists are right to believe in the upward trajectory of the Pakistani economy, and the Pakistani capital markets provide a strong mechanism for middle class Pakistanis to generate wealth for themselves and their families through the capital markets.

The above point is one this publication has made several times in the past, though perhaps in slightly less categorical terms. So what has changed? In a word: data.

There is now 33 years of data – roughly a whole generation’s worth – that demonstrates the value of investing in Pakistani stocks. During those 33 years, the country has seen unstable democracy, military coups, war in Afghanistan, refugee crises, dozens of International Monetary Fund (IMF) bailouts, and several cycles of extreme economic upheaval. The market has had several hard crashes, and several euphoric rises.

Is the market volatile? Yes. But now we know how it reacts to just about anything this country can throw at it, and so fewer and fewer of the sceptics reasons for not investing in Pakistani stocks make sense with each passing year. In any given year, is there a very high likelihood that your investment in Pakistani stocks will lose money? Yes. Is there now a reasonable expectation that if you do not panic sell during the market’s crashes, the next bull run will more than make up for your losses? Also, yes.

In this article, we will do something a bit different. We will not just give you the cold mathematical facts about investing in Pakistani stocks (“if you had invested RsX at Y date, you would have had RsZ by now”). We will address the messy reality of it from the perspective of living, breathing, emotional human beings.

We will trace the history of the market from the genesis of the KSE-100 index in November 1991, examine how the market has reacted to 33 years of political and economic change in Pakistan, and then look at what it would mean to have been an investor throughout that whole period, including the good, the bad, and the ugly.

We will then address what it means to be an investor in Pakistani stocks, and in this section, we will address the valid criticism that the universe of publicly listed companies is not representative of the sector breakdown of the broader economy, and that some of Pakistan’s most promising companies remain privately held.

Our conclusion: it is very hard to be an investor in Pakistani stocks, and there are many valid reasons to be a sceptic. But it is worth it to invest anyway.