Prime Minister Shehbaz Sharif was naturally chuffed at the bull run on the Pakistan Stock Exchange, which saw the KSE-100 cross 90,000 points on Friday, though it fell back slightly to close at 89,993.96. This gain for the day was more than 1000 points for the day. Since the February 9 election, ther Index hs gone up about 38,000 points. While anyone who knows how stock markets work, knows that they do not rise or fall at anyone’s behest, but do so according to the estimates of future earnings of the stocks being traded. Thus a rise does mean that a positive view is being taken of the economy. Mr Sharif’s interpretation, that the improvement brought about by his government since it took office after the February election, may not be entirely incorrect, but it reflects the opinions of hardheaded businessmen rather than the predilections of fanatical followers. As soon as there will be a downturn in the wider economy, the Index will come down.
Still, there are certain things that the government seems to have got right. Most recently, it succeeded in getting the 26th Amendment passed by Parliament, after its earlier failure to do so had led to an impression of its shakiness. Political stability is the first requirement of a government, and the stock market clearly thinks that the government is providing it. Incidentally, this is also a vote of confidence in the IMF, which Mr Sharif had admitted dictates policy. Another important factor is the taming of inflation, which has allowed the State Bank to trim the interest rate, and with a further cut expected at the next meeting of the SBP’s Monetary Price Committee. When the cut actually comes, the market might jump further, on the expectation of increased profits as companies find a lowering of the cost of doing business.
The bull run can be explained by corporate factors, but it is the government which provides the right environment for companies to make profits. The stock market is unlikely to find a more sympathetic PM, and as its companies are unlikely to have the concerns of the unregistered part of the business community, they might find his policies a comfortable fit.The market now seems likely to move on the truly momentous milestone of six figures. It is not just a matter of time, but sound economic management.
