Pakistan Stock Exchange’s benchmark KSE-100 index has been termed Asia’s best performing market, outperforming Asian peers with a 27 per cent surge in dollar terms this year.

Bloomberg, in a report, said, “The case for more gains is strengthening on the back of one of the cheapest valuations in Asia and the budget laying the groundwork to secure a new loan from the International Monetary Fund [IMF].

“A stable rupee and easing inflation boosting the prospect for rate cuts are other positives,” it added.

The report quoted Topline Securities as saying that the benchmark index was likely “to further extend gains by 10pc by year-end”.

Regarding valuations, the report said that despite trading at a record high, the index remained cheap; at one-year forward earnings-based valuation of 3.8x — a 50pc discount to its lifetime average.

However, Bloomberg Economics noted that the country’s stock market remained exposed to political instability given the weak mandate of the current coalition government led by PML-N’s Prime Minister Shehbaz Sharif, adding that the its main ally — Pakistan Peoples Party — could “easily walk away in the event of a public backlash to austerity measures taken to fulfill the IMF’s conditions”, which could be enough to “topple the government”.

Previously, the country raised taxes on industries such as cement, automobile and steel aligned with the IMF conditions.

“The IMF programme is critical for the country to help meet its debt payments of about $24 billion in the next fiscal year,” the report said.

Meanwhile, the benchmark index’s “14-day relative strength” index surpassed the 70,000 level on Thursday. Bloomberg added that “that is typically seen as representing overbought levels, raising the prospect of a correction”.