US tariff hikes unlikely to derail equities market
Bulls continued their stampede on the trade floor on Friday, April 04, 2025 at the Pakistan Stock Exchange (PSX) surged more than 1,800 points in an all-time high in intraday trade. The benchmark KSE-100 index surged 1,855.30, or 1.56% to 120,793.41. However, by the end of the session, the index reversed its gains and traded in the red. The index declined by 146.45 points, or 0.12% to close the week at 118,938.11.
Despite falling global markets, the index crossed the 120,000 barrier in intraday trade amid expectations of better earnings after government cut power rates as well as the promise to resolve circular debt.
PSX had witnessed a slight pullback during the earlier week, retreating after reaching its highest-ever closing a week ago. The benchmark index closed at 117,806 points, down by 635 points or 0.54%WoW. Average daily trading volume also dropped by 38%WoW, to 317 million shares, as compared to 508 million shares traded a week ago.
The profit taking was driven by substantial selling by Insurance companies, alongside month-end rollovers, which added to investors’ unease before Eid holidays.
Several positive developments emerged during the week, as IMF confirmed reaching the Staff Level Agreement (SLA) with the authorities in the first review of EFF, supplemented with a 28-month arrangement of US$1.3 billion under Resilience and Sustainability Facility (RSF), pending approval of the IMF’s Executive Board.
GDP growth for 2QFY25 was recorded at 1.7%YoY, with Agriculture recovering by 1.1%YoY amidst a 5.4%YoY decline in crops growth.
PKR largely remained stable against the greenback throughout the week.
Other major news flow during the week included: 1) IMF team due in May to finalize FY26 budget, 2) GoP to slash power tariffs soon, 3) Turkiye, Denmark to support climate fight, 4) Net metering contract term limited to 5 years, and 5) Pakistan receives US$9.77 billion via RDA as of February 2025.
Tobacco, Glass & Ceramics, and Vanaspati & Allied Industries were amongst the top performing sectors, while Leather & Tanneries, Paper & Board, and Technology & Communication were amongst the laggards.
Major selling was recorded by Insurance Companies with a net sell of US$8.8 million. Individuals and Other Organizations absorbed most of the selling with a net buy of US$9.3 million.
Top performers during the week were: PAKT, UBL, ATLH, NPL, and ABOT, while laggards included: PKGP, SRVI, KTML, CHCC, and NML.
According to AKD Securities the arket is expected to remain positive in the coming weeks, with the recent announcement of a staff-level agreement serving as a key trigger for momentum.
The benchmark index is anticipated to sustain its upward trajectory, primarily driven by strong earnings in fertilizers, sustained ROEs in Banks, and improving cash flows of E&Ps and OMCs, benefiting from falling interest rates and economic stability.
The recent Executive Order by the US President declaring a national emergency over persistent trade deficits marks a significant escalation in US trade policy, with base-line 10% ad valorem duties imposed on all imports, while escalating tariffs for select countries. While the intent is to rebalance trade flows between US and its partners, the policy is expected to have implications for global trade, particularly for export-reliant emerging markets.
According to Pakistan’s leading brokerage house, AKD Securities, the US stands as Pakistan’s single largest export destination, accounting for 18% of country’s total exports, with textiles and apparel contributing the most. However, escalation in protectionist policies is expected to be more pronounced for peer export-driven economies such as Bangladesh, China, Thailand, and Vietnam, countries that compete directly with Pakistan in key categories. While this may result in overall value loss globally (due to higher prices), but may also act as an opportunity for domestic exporters to gain share, especially if higher tariffs on competing nations lead to a shift in sourcing preferences. Moreover, domestic exporters may still retain a competitive edge through individual negotiations with US importers in order to retain competitive advantage.
Simultaneously, Pakistan’s continued access to preferential trade agreement under the EU’s GSP+ regime is expected to act as a buffer against US tariff headwinds.
Textile exports to the US account 26% of Pakistan’s total textile exports (US$4.3 billion in FY24). Going forward, analysts believe the implementation of higher tariffs under the revised US trade framework is likely to dampen export momentum from Pakistan. As US manufacturers pass on elevated import costs to consumers, softer demand could translate into slower order flows for domestic exporters. However, a relatively favorable tariff differential — WHERE regional competitors such as China and Vietnam face steeper duties compared to Pakistan’s 30% rate, is expected to potentially offset some of the impact. That said, countries like India and Turkey are expected to be the primary beneficiaries due to their comparatively lower tariffs and available production capacity.
Among non-textile sectors, impact of US tariff revisions is expected to be limited, particularly for cement players DGKC and POWER, which have previously explored export opportunities to the states, but volumes remain negligible. On the other side, PAEL which recently marked its entry into the U.S. market with its first transformer consignment, may face headwinds in scaling up exports under the revised tariff structure.
Being an import-led economy, the imposition of US tariffs would benefit Pakistan due to possible decline in global commodity prices. Further, with an overall trade surplus of US$3.6 billion with the US during FY24, analysts anticipate the impact of the tariff hike to remain sector-specific, largely concentrated in textiles. That said the recent announcement by the Prime Minister to lower electricity tariffs for residential and industrial users is expected to cushion broader macro sentiment. The positive development, is likely to stimulate aggregate demand while easing cost-side pressures for local producers, subsequently raising competitiveness in export markets and offsetting headwinds from tariff disruptions announced by the US. In summary, analysts expect the KSE-100 to continue performing better, given the increasing attractiveness of equities amid falling interest rates and a stable currency.