Saudi aid helps stock market record highest gain in three-and-a-half years

October 24, 2018

The news triggered a ‘bull run’ at the market, meaning investors rushed to the market to buy stocks

News of Pakistan securing $6 billion in aid from the Saudis triggered a bull run at the stock exchange, which gained 1,000 points within 10 minutes of opening and recorded its highest intraday gain in the last three-and-a-half years.

The benchmark KSE-100 Index gained 1,556 points or 4.1% on Wednesday as investors went on a buying spree on the back of more clarity on the country’s balance of payment situation, one of the biggest economic challenges facing the PTI government.

Since taking charge this August, the PTI government has been trying to seek help from friendly countries to avoid a default on foreign payments. After much delay, the government formally requested the IMF for assistance, but also sped up efforts to secure dollar loans from friendly countries such as China and Saudi Arabia.

The kingdom agreed to extend $3 billion in deposits and another $3 billion in oil credit to Islamabad on Tuesday. Pakistan is expected to secure another $8 billion from the IMF, which is sending its mission to Islamabad next month.

Related: Dollar falls to two-week low after Saudis pledge $6b support

The new loans will shore up the country’s dwindling foreign exchange reserves — currently standing at a four-year low of $8 billion — and help it avoid default on payments: imports (like oil, raw materials, machinery etc) and foreign loans.

The market had remained under pressure since the new government took charge in August. The government’s inability to take timely decisions on key economic issues, such as availing the IMF programme, caused panic among investors who resorted to offloading shares, bringing the index down to 36,600 points on October 16, its lowest level in two-and-half years. Besides, there were fears that rupee will depreciate further, which kept investors away from the market.

 

The market lost 22.8% of its value (in dollar terms) this year, but news from Riyadh breathed life back into it. The dollar also fell by Rs1.9 in early hours of interbank market and was trading at 132.

The market is also expecting more positive news from Beijing as Prime Minister Imran Khan has left for China today. He is also in talks with Malaysia, another major trading partner. If PM Khan can secure $8 to $10 billion from these friendly countries, it will be in a better position to negotiate with IMF next month. All these factors have been driving investor sentiments, say analysts.

Related: This will be Pakistan’s last IMF programme, says Finance Minister Asad Umar

Now that there is more clarity on the balance of payment situation, the KSE-100 index, the gauge to measure market performance, has bounced back sharply. It closed at 39,271 points.

Chemicals, energy, cement, technology, and banks were among the sectors that saw highest trade volumes.