Pakistan Stock Exchange Trading Volume Drops by 25%, Amid Static Monetary Policy and High Inflation

In a week concluding on February 02, 2024, Pakistan Stock Exchange (PSX) saw a substantial decrease in trading activity. The overall trading volume fell by a quarter, experiencing a 25% week-over-week downturn, with this reduction mainly influenced by events that stirred the energy sector.

Monetary and Economic Indicators

The country's central bank disclosed its monetary policy decision, which aligned with market anticipations by keeping interest rates steady. This decision factored in the possibility of future rate cuts, backed by the forecast that real interest rates will stay positive across the following year. Nevertheless, January's Consumer Price Index (CPI) climbed to 28.34% year-over-year, primarily due to rises in energy and food prices.

Foreign Exchange and Inflation Issues

Pakistan's foreign exchange reserves saw a slight drop, while the Pakistani Rupee (PKR) gained strength against the US dollar. Concurrently, inflationary pressures escalated, with motor gasoline and diesel prices increasing due to the intensifying risks in the Middle East.

Stock Market Performance

Average daily shares traded receded to 312.8 million from the past week's 415.8 million. The benchmark index also reflected the market's stress by shedding 810 points, translating to a 1.27% weekly decrease.

Noteworthy Economic Updates

Several pivotal developments affected the economic landscape, such as Pakistan's request for China to roll over a $2 billion debt and a budget deficit hike. In addition, the International Monetary Fund (IMF) cut the country's GDP growth forecast. The market's functionality was further strained by soaring inflation and rising Karachi Inter-Bank Offered Rate (Kibor).

Sector Performance and Foreign Transactions

Exchange-traded funds and the transport sector outperformed others, while automotive parts, chemicals, and oil marketing companies lagged behind. Foreign investors sold significantly, but insurance companies mitigated the impact by buying in.

Outlook and Predictions

Coming elections are poised to keep market activity timid. However, post-elections are expected to infuse vitality into the market. Confidence among investors could be buoyed by successful debt management strategies and tariff revisions, pending IMF approval. In the long run, experts maintain an optimistic view on the banking, exploration and production, and oil marketing sectors due to the possibility of earnings improvements and enticing dividend yields.

Pakistan, StockExchange, TradingVolume, Economy, Inflation, MonetaryPolicy