What Causes Volatility in Pakistan Stock Market

For a long time, Pakistan’s Stock Market was performing exceptionally well. Over the years of continued stable political and improved security indicator further strengthened the economic activity in the country. All of a sudden, political turmoil griped the country in wake of Panama Leaks accusing head of the ruling party.

Here are the reasons why the Pakistan stock market has been experiencing major volatility.

Political ripple effect:

Pakistan’s largest party and PM accused in Panama Gates and ousted after marathon hearings in the country’s highest court. As a result, PSX - biggest stock market of Pakistan invariably had a ripple effect all over. When the KSE100 index fell after marking historic high of around 53,000 slipped more than 30% despite venturing into MSCI regime.  

Risk of fiscal gaffe:

Persistent rise in the current account deficit due to a higher trade gap led by a significant increase in imports as compared to exports. Pakistan’s trade deficit rose 24.18% to over $9.2 billion in the first seven months of the current fiscal, while foreign currency reserves were declining at a rapid pace. The markets are worried the way the local Rupee devolution in recent past, higher trade deficit may pose extra pressure on Pak Rupee.

The total liquid foreign reserves held by the country stood at $18.413 billion on end of February, 2018 including $12.34 held by the SBP and remaining $6.067 billion by the commercial banks.

Foreign Remittances:

According to figures released by the State Bank of Pakistan for the period July-Feb increased by 3.41% to $12,833.64 Million compared to $12,410.54 Million for the corresponding period from last year. 

Foreign direct investment (FDI) remained dried up in the seven months of FY18, as FDI inflows came to $1.487 billion during July-January FY18, compared with $1.532 billion a year ago.

Recuperating Exports:

The exports achieving the highest monthly growth yet in the fiscal year by posting 16% increase in dollar terms exports in February 2017. However the current year’s export has already contributed additional inflows of around USD 1.5 bn during the first eight months and is expected to reach the figure of additional USD 2.5 bn, during 2017-18. This increase in economic activity in external sector reflects an increase of 0.8% of GDP.

Keep Check on Macroeconomic trends:

Economic manager needs to keep CHECK on current macroeconomic trends to sustain the achieved growth and huge catch up in the financial years ahead provided with controlled and fiscal discipline. Here are the encouraging signs to buildup.   

Timely completion of Energy Projects and low output cost would bring down cost of production.

Inflation Rate around 4%.

CPEC projects on track.

Senate Elections clearing the political vague.

Attractive Valuations.    

Potential growth in FDI’s.