Pakistan’s Stock Exchange finally gave in to the mounting pressure that had built up over the past months, with the KSE-100 index plunging by a whopping 2100 points on Thursday, losing close to 4.7 percent of its value. The stock market took such a spectacular intraday dive back in March of 2020 when the Covid-19 pandemic had hit the country and restrictions were put in place. The latest bloodbath has nothing to do with the discovery and spread of the Omicron variant around the world as it has not arrived in Pakistan yet, and is rather attributable to another virus: an economy in tatters, going from bad to worse. The Pakistan Bureau of Statistics (PBS) reporting a sharp year-on-year increase of 163% in the trade imbalance in November is a concerning addition to an already long list of deteriorating macroeconomic indicators. There has so far been no let-up in inflation with the Consumer Price Index (CPI) coming in at 9.2 percent with a realistic expectation of it crossing the dreaded double-digit barrier of 10 percent when November’s numbers are reported. To counter this, the SBP has hiked its policy rate by a substantial 150 basis points to 8.75% to soak up excess liquidity in the market. T-bills yields jumping to 12 percent indicates that a further increase of at least 100 basis points is imminent in the next monetary policy statement.
Additionally, the rupee continues to slide, closing at around 176.65 to the dollar in the interbank on Friday with no end in sight as the central bank is unable or simply unwilling to intervene in the market. Owing to better returns on government debt and a falling rupee, stock market investors have clearly done some profit taking by liquidating their positions and have moved their capital to greener pastures. However, market sentiment has an equally important role to encourage that switch and the perception there is that the economy will not miraculously recover from the multiple shocks it has already received, at least not anytime soon. Uncertainty over the resumption of the IMF programme and tough inflationary conditions attached to that, coupled with a government that is having a hard time defending its mishandling of the economy, are realities that have no simple solutions or answers. Until there is improvement in major economic indicators, the stock market will continue to be volatile and remain bearish.
