KARACHI:
Naysayers are unmistakably caught off guard. A mere revival of the International Monetary Fund (IMF)’s bailout programme has done the trick. What could have been achieved much earlier was needlessly delayed until the brink of default. Perhaps our culture is entrenched in the notion of hard work only when the sky is on the verge of falling. The clouds of macroeconomic uncertainty are finally dissipating. The Pakistan Stock Exchange (PSX)’s 22% surge is merely the beginning. Or is it?
Stock markets are typically evaluated using the Price to Earnings (P/E) ratio—how many Rupees (price) investors are willing to pay for an asset generating (earning) Rs1 profit per year. Of course, the “E” represents a calculated bet involving the company’s future growth rate, industry dynamics, and anticipated economic conditions. The broader Karachi Stock Exchange (KSE)-100 Index was trading near a 3x P/E—a feat not witnessed for decades—only to now hover around 4sh P/E despite recent gains. Whether these jubilations persist hinges on our expectations and government initiatives.
The constant oscillation between optimism (boom) and pessimism (bust) has systematically eroded Pakistan’s economic allure in the eyes of investors. In stark terms, our discount has widened to the extent that investors have steered clear of Pakistan as an investment hub, demanding significantly higher returns to offset risks. Coupled with the global context of a 5% rise in US interest rates, the attractiveness of Emerging/Frontier markets has markedly diminished. A substantial portion of global and local capital is gravitating toward “risk-free” fixed returns.
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Source: Tribune.com.pk
ENB
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