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Pakistan stock market hits 21-week high

KSE-100 at 40,422 points

SAMAA | - Posted: Aug 6, 2020 | Last Updated: 10 months ago
Posted: Aug 6, 2020 | Last Updated: 10 months ago

Photo: Online

The KSE-100 index, the benchmark index at the Pakistan Stock Exchange (PSX), hit a 21-week high at 40,422 points on Thursday.

The KSE-100 index improved by 540 points. The last time it was above 40,422 points was in February.

The index has been rising after reaching its lowest level in March when the World Health Organisation declared COVID-19 a pandemic and soon after stock markets across the world reacted to it. 

The rising performance of the KSE-100 index can be attributed to lower interest rates, construction packages by the government and the revival of economic activities.

Interest rates have been lowered by the government leading to lower profits on saving money at banks. Therefore, investors are more willing to invest their money in the stock market and earn a higher profit than keep money in the bank.

According to the director of the Pakistan Stock Exchange, Ahmed Chinoy, “this positive reaction can be attributed to government policies such as decrease in interest rate, due to which people are putting money in the stock market.”

Another major reason for the rising performance of the KSE-100 index can be the construction packages announced by the government.

The government renewed its efforts to revive its flagship housing project, rolling out a support package, which experts believe is enticing and may make the scheme successful. The PM announced a subsidy of Rs30 billion for building the initial 100,000 houses under the Naya Pakistan Housing Scheme.

The central bank directed commercial banks to allocate 5% of their total lending for construction activity, including mortgage financing, which could mean a pool of Rs200 billion of additional funding for the above programme. The World Bank also provided a $500 million credit line to Pakistan to support the housing project.

“The construction package is an attractive package due to which a lot of industries are coming into operation, causing positivity in the industry, and this may lead to a construction boom in future,” said Chinoy.

“Almost all sectors are improving but steel, oil and cement are those sectors that are in demand and the consumption levels have increased after corona, causing a positive reaction in the market,” he added.

When the cement industry rises, it drives demand for many other industries such as pipes and steel.

Meanwhile, the revival of economic activities and the decrease number of coronavirus cases in the country has also created positivity among investors causing the KSE-100 index to rise.

“Revival of economic activities in the country and lower current account deficit is driving the KSE-100 index up,” says Saqib Hussain of Sherman Securities.

“COVID-19 has settled sooner than expected, the economy has picked up as diesel and cement sales are encouraging. External numbers are encouraging too with trade deficit declining to $1.5 billion in July 2020 as compared to $1.8 billion in July 2019,” Ali Ather from Lakson Investments said.

Looking at the current situation of the economy, market experts expect the KSE-100 index to rise further in the future.

“The market can be at 43,000 by the end of December 2020 if the second wave of COVID-19 doesn’t hit us or any other unexpected shock occurs to the economy,” said Ather.

According to Raza Jafri, the head of equities at Intermarket Securities, “the KSE-100 index is now close to where it started this calendar year and can give an up to a 10% positive return across calendar year 2020, with the momentum likely to extend into calendar year 2021.”

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