Executive statement
The KSE 100 declined 3252 points or 7.29% since the commencement of FY 2021-22, according to trading on a contract for difference (CFD). Four key features that will effect Pakistan’s market in future includes (i) economic stabilization methods, (ii) current account deficit and devaluation, (iii) fuel prices and inflation, local and (iv) regional politics and foreign reserves tendency. However, the current scenario of the market that could lead to lower-than-expected index levels would include delay in IMF loan disbursement, increase in political din and is expected to worsen the economic situation.
Context
The prevailing economic condition joined with the deteriorating political disaster in Pakistan is offering a very unwelcoming image for the common, mainly, the lower and middle classes of Pakistan, who have been enforced to shoulder this weight for years. The empirical data proposes that the PSX has turn into the second nastiest acting market in the region after Sri Lanka in the full current fiscal year (July-June FY22). PSX has dropped nearly 31 per cent in dollar terms in the current fiscal year to date, according to Arif Habib Limited (AHL).
Key recommendation
- Fiscal year 2021 was showing stable growth rates as compared to previous fiscal years of covid-19 crises, however, still it was on the trajectory of recovery from the early shockwave of Covid-19 epidemic and lockdowns, which has severely affected the Pakistan’s stock exchange performance.
- I recommend that policy architects and investors along with government understanding must take comforting actions to elevate the plunged economy and attempt to backing financial markets to uplift business activities.
The average price of KSE 100 index for April-June 2021-22 is 46301.04 and in 2022 it is 43387.39. It indicates that the performance of KSE 100 is better in April to June 2021 as compared to said period of 2022. The standard error and deviation indicate that there is more uncertainty in selected period of 2022 as compared to 2021 (see Table 1).
Table 1: Statistical and Graphical Analysis
| Statistics | Year 2021 | Year 2022 |
| Mean | 46301.04 | 43387.39 |
| Standard Error | 200.94 | 225.63 |
| Median | 45814.66 | 42926.62 |
| Range | 4740.03 | 5751.59 |
| Minimum | 43937.90 | 40927.05 |
| Maximum | 48677.92 | 46678.65 |
| Count | 59 | 59 |
Statistical evidences
The 2022’s trend shows a more declining trend as compared to year 2021, posing weak performance of KSE 100 in April-June 2021-22 (see figure 1).
The return series of performance indices of KSE 100 for 2021 and 2022 in Figure 2, shows less fluctuation in 2021 as compared 2022, depicting more uncertainty in 2022.
The political regime changes in last quarter of FY-2021-22 and the statistical analysis KSE-100 index declined 3,708 points in last quarter of FY-2021-22, while in same period of last year it increased 2,583 points.
The performance index and return series of performance index of KSE 100 for selected period of 2021 in figure 3 and 4 displays the upward trend of KSE 100 index in 2021 and least fluctuation around the mean value of return series.
KSE 100 performance index shows downward trend and the return series moving around the mean value with high fluctuation in 2022 (see figure 5 and 6).
There are many reasons for this down fall which belongs to political instability, economic crisis, uncertainty due to international wars, and exchange rate deterioration.
A positive trend in KSE-100 index is depicted in April-June 2021, it continuously increased from 44,877 points on April 01, 2021 to 47,460 points on June 30th 2021.The index trend remained in positive change as it increased 2583 points during this period. Starting from April 1, 2021 stock market opened at index 44,587 points and remained at its maximum points 45, 056 on 30th April, 2021. On 3rd May, 2021 stock market started from 44,266 points and moved to maximum level at 47,979 points on the last working day of May, 2021.KSE-100 index moved upward about 3,713 points during this month. On 1st June, 2021 KSE-100 index started from opening index 47,896 points.it touch to its maximum 48,976 points on 14th June, 2021 and remained to a maximum point at 47,460 on 30th June, 2021.
There is continuous decline in the KSE-100 index in April-June 2022. The KSE-100 index was on its peak 46,969 points on April 18, 2022 and afterward it continuously decreased to 40,555 points on 24th June, 2022. On April 1st 2022 KSE-100 index started with 44,928 points and reached at its maximum level at 45,533 points on 28th April, 2022. In May, 2022 index started from 45,249 and remained at maximum level on the last working day of May, 2022 at 43,339 points with a declining trend in the market while at the end of June 30th, 2022 KSE-100 index reached at the lowest level 41,220 points.
Conclusions and recommendations
Pakistan being an emergent economy is by this time facing countless socioeconomic difficulties. The political turmoil has hauled the poor country into more serious concerns, to deal with.
- Unluckily, Pakistan stock exchange faces reduction in KSE-100 index, investment and capitalization during three months’ period.
- The fall in employment is hitting the capital formation and output badly.
- In future the damage of tax collection would also arise and the Governments would shift this burden on the already tax payers.
- The fiscal and monetary policies, dependent on government revenue gathering, have seen major policy changes.
- It eventually expressions a gigantic economic despair for all over economy. It also has decelerated the Investment course.
- This condition is accountable for the poor governance of the economy as a total which has expanding poverty. The process of economic development deteriorates more by the weakening enactment of all socioeconomic indicators.
Policy Recommendation
I conclude that the economists, policy architects and investors along with government understanding must take comforting actions to elevate the plunged economy and attempt to backing financial markets to uplift business activities.
Limitations
- The policy brief is based on small sample, that is be extended.
- The historical literature review should be taken under consideration for long policy prescription.
References
Data Sources
Data is taken from PSX website or it can be traced out at Yahoo %nance and investing.com.
Disclaimer:
The views expressed in this policy brief are those of the author and is extracted from his M.Phil. thesis, titled: An Economic Analysis of Pakistan Stock Exchange daily share prices during Regime Change and Political Turmoil. In no way the recommendation and statistics be attributed to the university or Department.
The Author is a MPhil Student & Director respectively at Institute of Agricultural & Resource Economics, University of Agriculture Faisalabad.
khalidmushtaq@uaf.edu.pk