NOTWITHSTANDING its daily fluctuations, the stock market continues its current impressive run. On Friday, it made history when the benchmark KSE-100 index achieved a record high, closing at 53,175. The last time the market crossed the 53,000 barrier was nearly six and a half years ago. But it had closed below the 52,900 level. With stock prices up 30pc since June, Bloomberg has termed the PSX as the best performing market since end-August in dollar terms among the over 90 equity indices it tracks worldwide. The upswing in share prices can be attributed to multiple factors. For starters, major shares are still up for grabs at a significant discount compared to the last time the index peaked during intraday trade, with corporate profits soaring. Economic ‘improvements’ generating optimism regarding the ongoing review of the IMF programme, less uncertainty following the announcement of a firm poll date by the ECP, and expectations of an early start to the reversal of monetary tightening are believed to have provided a fillip to the market. Moreover, reports of Saudi Arabia being in talks for investing in the Reko Diq project and IFC plans to invest $1.5bn in Pakistan have also contributed to positive sentiments.

And yet, the march of the bulls might prove short-lived, contrary to the hopeful predictions made by some market watchers. Whatever the macroeconomic gains, recovery remains fragile as it is the outcome of short-term fixes such as cuts in development spending, import curbs, an increase in indirect taxation and administrative actions. Deeper structural weaknesses such as a very narrow tax base, low industrial and agricultural productivity and the unimpressive level of exports have not been addressed. Concerns over the fairness of the next polls have spawned fears of renewed political instability. Expectations regarding the future trajectory of the economy and political stability post elections will have a strong bearing on market performance.

Published in Dawn, November 5th, 2023