Optimism continues as PSX races past 105,000 on slowing inflation

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This screengrab shows activity at the Pakistan Stock Exchange at around 4pm on Wednesday. — PSX data portal
This screengrab shows activity at the Pakistan Stock Exchange at around 4pm on Wednesday. — PSX data portal

Bullish momentum continued at the Pakistan Stock Exchange (PSX) on Wednesday as shares gained over500 points to cross 105,000 as lower inflation boosted investor confidence.

The benchmark KSE-100 index rose 545.26 points, or 0.52 per cent, from the previous close to stand at 105,104.33 points at the end of the day.

The surge comes two days after data from the Pakistan Bureau of Statistics showed inflation dropped to 4.9pc in November, the lowest since 2017.

“Investors are optimistic about further reduction in policy rate as inflation falls below 5pc for November 2024,” said Awais Ashraf, director of research at AKD Securities, referring to the upcoming monetary policy meeting scheduled for Dec 16.

He noted that “indications of economic growth recovery, highlighted by a rebound in cement sales and a surge in petroleum sales,” were also bolstering investor confidence.

Overall cement sales posted a meagre increase of 5.58pc in November, reaching 4.146 million tonnes from 3.927m tonnes in the corresponding period last year.

Yousuf M. Farooq, director of research at Chase Securities, also pointed out the “sharp decline in interest rates from 23pc to 15pc”.

He highlighted similarities between the current bullish momentum and those in the past: “This pattern is not unlike previous rallies triggered by interest rate declines in 2002-2003, 2011-2016, and 2021-2022.

“However, the key distinction this time is that the rally began with interest rates at an all-time high, and the downward trend in rates is expected to continue for another one-to-two years,” Farooq added.

Noting that there was “some speculative activity” in stocks priced below Rs15/share, he advised retail investors to “consult with financial advisors, thoroughly understand their investments and avoid speculative behaviour”.

Farooq reiterated his suggestion that retail investors should focus on “long-term compounding and prioritise quality over quantity”.

Stating that the declining interest rate environment had prompted a shift from “safer assets to riskier ones like equities”, he forecasted the PSX to grow “in line with its long-term growth rate of 16pc-18pc”.

“Investors are encouraged to disregard short-term market fluctuations and concentrate on their long-term investment plans by making regular, small contributions to debt and equity investments, aligned with their individual risk profiles,” Farooq said.

Earlier in the session today, the PSX gained as many as 903.57 points to reach 105,462.64 at 10:25am but receded to 104,940.39 within half an hour during intraday trade, before closing slightly above 105,000.

On Tuesday, according to Topline Securities Ltd, the trade value in the ready market climbed to an impressive Rs57 billion ($203m), marking the highest level in 18 years.

Adding to the positive sentiment, the country’s trade deficit for November contracted by 19pc year-on-year to $1.59bn, supported by a rise in exports and a decline in imports. This improvement has bolstered expectations of a robust current account surplus, further uplifting market confidence.

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