Pakistan Stock Exchange Emerges as World’s Best-Performing Stock Market in 2024
The Pakistan Stock Exchange (PSX) was proudly recognized as the world’s best-performing stock market in 2024. Its sensational rise beyond 90,000 points on the KSE-100 index was propelled by the dynamics of the underlying economy and structural changes in Pakistan’s economy rather than mere government narrative or opposition critique. This article elaborates on the main scientific and economic reasons for PSX’s surge, underlining four main reasons.
How PSX The World’s Best-Performing Stock Market Caused GDP Growth in Local Currency
Pakistan’s GDP in 2021-22 was approximately $348 billion, with the dollar averaging around 188 PKR. This equated to a GDP value of 65,424 billion PKR. In 2023-2024, GDP slightly declined to $338 billion, but with an average dollar rate of 280 PKR, this led to a local currency GDP of around 94,640 billion PKR. This growth reflects not just inflation but also increased productivity, notably through bumper agricultural crops and expanding industrial output. Despite challenges, the industrial sector has continued to perform well, increasing production and profitability. Higher profits have led to increased stock values, driving the KSE-100 index to record levels.
The latest PSX summary of the Pakistan Stock Market can be accessed here.
Shift from Real Estate to Stock Market Investments
Traditionally, a significant portion of Pakistan’s capital has gone into real estate, limiting the capital available for business investments. Economically, high real estate investments tend to restrict overall market liquidity and innovation, and developed countries often limit these investments. This year, for the first time, Pakistan imposed high taxes on real estate transactions under IMF guidance, especially for non-filers, effectively reducing the appeal of real estate investments. Consequently, the capital previously directed toward real estate is now finding its way into the stock market, creating a stronger, more diversified investment landscape in Pakistan and leading to a substantial uptick in the PSX.
Decline in KIBOR Rates
Another important factor is the significant drop in the Karachi Interbank Offered Rate (KIBOR), which decreased from around 22.5% to approximately 14.8% over the past 10 months. As bank deposit returns became less attractive, many investors moved their funds from savings accounts into the stock market, anticipating higher returns. This increase in capital inflow has directly fueled the demand for stocks, pushing up prices and contributing to the record-breaking performance of the PSX.
Political Stability and Market Confidence
Political stability has also bolstered investor confidence. Recent political changes, regardless of one’s perspective on them, have instilled a belief that economic policies may remain stable without major upheaval. This predictability reassures investors, as markets typically flourish in stable political climates. In Pakistan, these shifts have encouraged local and foreign investors to view the PSX as a more secure investment, aligning with global market trends.
Foreign Investor Interest in the PSX
Foreign investors have shown increasing interest in Pakistan’s equity market. Favorable reforms and improved economic indicators like foreign direct investment, a current account surplus, and the strengthening rupee are all factors supporting this foreign interest. A stable currency reduces currency risk, making the PSX an attractive investment destination for international players, further fueling market performance.
Achieving the 90,000-Point Milestone
The KSE-100 index surpassing 90,000 points is a historic milestone, indicating the PSX’s impressive growth trajectory. This achievement is a testament to Pakistan’s evolving economic resilience and growing investor confidence in the stock market. By reaching this level, the PSX not only showcases Pakistan’s economic potential but also demonstrates the market’s ability to attract and sustain high investor engagement over the long term.
Sustaining the Growth Momentum
As Pakistan looks to the future, the question of sustaining this momentum remains. Continued economic reforms and prudent fiscal policies will be key to maintaining the confidence of investors. The potential for further monetary easing, such as interest rate cuts, could keep investor enthusiasm high, as lower borrowing costs often encourage business expansion and increased corporate profits. At the same time, challenges like global economic volatility and the need for sustained political stability are factors that will require careful management.
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Conclusion
The Pakistan Stock Exchange’s performance in 2024 is a remarkable success story, driven by GDP growth in local currency, a strategic shift from real estate to the stock market, falling interest rates, and political stability. These economic and scientific factors highlight the strength and resilience of Pakistan’s economy when underpinned by targeted reforms and investor confidence. The PSX’s success this year is a strong foundation for future growth, underscoring Pakistan’s potential to continue attracting both local and foreign investment as it strengthens its economic framework.
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