Daily Times

The Pakistan Stock Exchange (PSX) is likely to remain range-bound in the coming week starting today (Monday) due to the MSCI review, International Monetary Fund (IMF) review, whopping current account deficit in August, Covid-19 concerns, and continuous depreciation of Pakistani rupee against the US dollar.

MSCI Inc, the world’s largest index provider, on June 25 proposed reclassifying the MSCI Pakistan Index from emerging to frontier markets as the Pakistani equity market has not met all necessary requirements. The index compiler began consultation with market participants on August 31 and will announce the decision on September 7 (Tuesday).

However, market gurus are divided over the outcome and are not unanimous about the downgrade impact on foreign portfolio investment. Some think that a potential downgrade to MSCI FM will be positive for the market in the long run. Pakistan fits well in the FM space, both in terms of size and stage of economic development, they argued. They said Pakistan would have a higher weight in FM and could attract more inflows than currently in EM. On the other hand, the International Monetary Fund (IMF) is likely to resume the $6 billion loan programme for Pakistan in September as officials of both sides, engaged in technical talks, are likely to find a middle ground on conditions of increasing energy prices and revenue collection.

“We believe Pakistani authorities are likely to successfully complete the sixth review of the IMF programme in September/ October 2021,” Topline Research Director and Chief Economist Syed Atif Zafar said in a report titled “Pakistan and the IMF: Likely Scenarios and Implications” last month. “We believe Pakistan and the IMF are likely to reach a middle ground with respect to increase in energy prices and revenue measures,” he added. The depreciation of Pakistani rupee against the US dollar and Covid concerns, besides the evolving situation in Afghanistan, also hit the market hard. The analysts said that the concerns persist over how manageable the deficit on the current account may be.

The benchmark KSE-100 index of the Pakistan Stock Exchange (PSX) is currently trading at a PER of 5.9x (2021) compared to the Asia Pacific regional average of 14.5x while offering a dividend yield of 7.0 percent versus 2.2 percent offered by the region. The benchmark KSE-100 Index shed 179.06 points (-0.37 percent), to close the week ended September 3, 2021 at 46,957.47 points. The KSE-30 shares index shed 62.63 points (-0.33 percent) to close at 18,851.16 points.