Karachi: Pakistani stocks are expected to rise on Monday due to reduced uncertainty after the presidential election, but analysts say any recovery can only be sustainable if quick action is taken to stabilise the economy.
Asif Ali Zardari, the widower of former prime minister Benazir Bhutto, swept to victory in a presidential election on Saturday, 6 September.
Prime Minister Yousaf Raza Gilani, a Zardari nominee, formed a coalition led by the Pakistan People’s Party five months ago. Last month, former army chief Pervez Musharraf, who came to power in a coup in 1999, stood down rather than face impeachment.
“Considering the last major political event is over, in the near term, the market is going to do well,” said Asif Ali Qureshi, head of research at Invisor Securities Ltd.
“How long the rally will last will depend on how quickly words are followed by concrete action and promises materialise.”
Pakistan’s main stock index, which rose for six consecutive years from 2002, and was one of the top performers in Asia during that period, but plunged more than 40% from a lifetime high in April and is down 33.6% since the start of the year due to political uncertainty and weak economic fundamentals.
Review of market floor
The authorities have taken a series of measures to stop the freefall since mid-year. On 28 August they put a floor of 9,144 on the index to stop the rot, and this limit will be reviewed at a meeting on 8 September at 2:45 pm.
The Pakistani rupee is near all time lows, foreign currency reserves are depleting, and inflation is running over 25%. Analysts say the government will have to deliver in terms of actions and not just words for any sustainable recovery.
The government has to make good commitments to cut its borrowing from the central bank, reduce the fiscal deficit, cut the balance of payments deficit and secure billions of dollars of financial assistance from friendly governments and multilateral lenders to bolster currency reserves. “As the initial euphoria over the election wears off, the reality of the economic crisis will hit Pakistan,” said Asad Iqbal, Managing Director at Ismail Iqbal Securities Ltd.
“If policy decisions are not made in a hurry to bring the country back from where its heading, then a disastrous situation is inevitable which includes default on foreign debt.”
The foreign currency reserves are so low, with $5.5 billion in central bank coffers, that the international bond market has priced in a possible default.
Investors anticipate, however, foreign lenders will help Pakistan avoid a default because of support for its transition to democracy and its importance as a frontline state in the global war on terrorism.
In the currency market, dealers are expecting the rupee to remain stable under 77 rupees to the dollar.
Dealers said the economic challenges had to be resolved for the rupee to recover ground in the long term.