PSX Review: KSE-100 achieves best yearly return in over a decade

December 30, 2032 (MLN): The Pakistan Stock Market posted its best yearly return since 2009, with its key benchmark KSE-100 index recording an eye-popping gain of 54.5% in 2023.

The benchmark index closed at highest yearly level of 62,451 gaining 21,632 points, and emerged as the fourth best-performing stock market for the year.

Moreover, in USD terms, the index recorded a gain of 24%.

The performance of the Pakistan equity market in 2023 can be characterized as a narrative split in two.

The first half of the year saw the local equity market facing multifaceted challenges, that triggered increased speculations of a country default on the back of external funding gaps.

In the first half of 2023, the KSE-100 index was up only 4% in PKR terms.

However, towards the end of the first half of the year, the International Monetary Fund (IMF) being a last resort saved Pakistan from a sovereign debt default with a $3bn Stand-by Arrangement (SBA).

The IMF loan program also unlocked significant bilateral inflows/rollovers from friendly countries which provided a much-needed boost to the depleting foreign reserves held by the country.

Following the IMF loan program, investors’ confidence resurfaced and the stock market started its historical bullish run that sent it to record highs.

Stock Market Performance

The market participation also remained heightened in 2023, with the average traded volume of KSE-100 surging to 164.6 million shares worth Rs7.96bn, showing an increase of 65% in number of shares and 54% in traded value.

Moreover, in USD terms, the traded value of KSE-100 rose 12.5% to $28.4m as against $25.2m in the previous year.

Meanwhile, the overall PSX average traded volume (All-Share) was recorded at 322.5m shares worth Rs10.1bn, marking an increase of 41% YoY in the number of shares and 46% YoY in traded value.

In USD terms, PSX traded value increased 6.6% to $35.9m

To note, the average traded volume was still significantly lower than in 2021, wherein the PSX recorded an average daily activity of 474m shares worth $105m.

Top Gainers and Losers

In percentage terms, the best-performing stocks during the year were PGLC, PKGP, COLG, SCBPL, and UBL as they gained 273%, 162%, 157%, 153%, and 141%, respectively.

Whereas PSEL, TRG, GADT, JVDC, and SYS with -39%, -27%, -19%, -12%, and -11% respectively took home the unwanted title of worst-performing scrips.

FIPI/LIPI

Foreign investors recorded the highest yearly investment in 8 years, with a notable acquisition of equities amounting to $73.5 million.

They were particularly active in the commercial banking sector, investing $35.7m.

In terms of overall flow, companies were the leading buyers for the year, making a net investment of $129.4m.

They allocated the majority of their capital, $57.5m, to the Cement sector, while divesting from the Commercial Banks, amounting to $17m in sales.

On the other hand, the leading sellers during 2023 were Mutual Funds as they offloaded $132m worth of equities.

Their most substantial sales activity was in Oil and Gas Exploration Companies, amounting to $33.3m, followed by Commercial Banks with sales of $30.5m.

Improved Economic Indicators

Following a rough year, the economy has started to show some early signs of improvement.

Pakistan’s Gross Domestic Product (GDP) growth rate witnessed a modest recovery in 3QCY23, recording at 2.13% as compared to 0.96% in 3QCY22.

The current account position of the country has also improved significantly in 2023.

In 11MCY23, the central bank data showed a current account surplus of $130 million, which is a significant improvement from 11MCY22’s huge deficit of $11.82bn.

Furthermore, the Pakistani Rupee (PKR) has recovered significantly thanks to the government’s crackdown on speculators, hoarders, and smugglers who were draining dollars from the country.

The spread between interbank and open market rates, which reached a high of around 9% in May has now almost vanished, well below the IMF's 1.25% recommended limit.

Improved transparency, lower spread between interbank and black market rates, coupled with strict measures against dollar smuggling are also expected to boost workers's remittances.

These inflows will be crucial for the cash-strapped county to meet its external financial obligations.

Outlook

After an intense rally, the local stock market can be expected to undergo a cooling-off/correction phase.

Nevertheless, amidst early indications of improved economic conditions, comparatively stable currency, downward trend in inflation, and a projected reduction in interest rates in 2024, the rally is expected to continue.

Market analysts foresee the bullish trend extending into 2024, driven by robust earnings growth, appealing valuations, and consistent economic expansion.

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