Stocks wrap up 2022 down 9pc on political, economic worries

KARACHI: The outgoing 2022 is leaving a little for investors to cheer as political and economic uncertainly throughout the year kept stocks rattled.

The benchmark KSE-100 index of Pakistan Stock Exchange (PSX) fell 9 percent in 2022, while the index was down 29 percent in US dollar terms, with the rupee falling 22 percent against the dollar.

“The year 2022 remained a very bad year for the capital market. The government changed, political clashes happened, terrorism increased, interest rates rose, and dollar-rupee parity soared,” Zafar Moti, former director of PSX said.

He added that the capital market had remained at the highest level of 47,000 points and the lowest was at 39,000 points, while overall trade of Rs1800 billion was done in the year. “Volumes were very low. The year 2022 will be remembered by everybody.”

Moti stated that the government had put curbs on imports to cut down the import bill, which caused exports to decline because of unavailability of raw materials. He also lamented on an energy crisis in the country.

“If we analyse it, the market is actually trading at 35,000 points level, it looks slightly higher because of some high scripts, and other scripts are trading very low. Investors are worried,” he said.

The former PSX director said the investors were concerned about the next year. “Capital market is truly reflecting the economy and condition of Pakistan.”

The year 2022 remained a turbulent year for global stocks markets also as $18 trillion were wiped out in 2022, with a drop of approximately 20 percent in MSCI World Index, which is the worst performance since the 2008 crisis. MSCI EM fell 22 percent while MSCI FM was down 29 percent in 2022.

According to a report of Topline Securities, activities at PSX remained dull on macroeconomic issues. The average traded volume (ready/cash) per day at PSX was down 52 percent to 230 million shares/day. Similarly, the average traded value per day was down 59 percent to Rs7 billion per day, which was the lowest since 2019.

In the futures market, total traded volume and value per day were also down by 33 percent and 56 percent to 94 million and Rs3.6 billion, respectively.

Muhammad Rameez, head of research at Foundation Securities, said the outgoing year was not suitable for the stock market as most of the industry-related stocks, and power-related stocks were down.

“Political regime change transition of the chief of army staff, and consistent vulnerable situation of the economy and macro indicators were the major reasons behind increasing uncertainty,” he said.

In 2022, floods also affected and food inflation increased. With an exception of the technology sector, almost all other sectors, including oil and gas, cement, power, and textile remained under pressure. A decline in exports and a fall in remittances can be mentioned, according to Rameez.

He further stated that despite a decline in market capitalisation, PSX was still trading 3x of the price, which was a positive sign and hopefully the market would perform better in the second half of 2023 when elections would be announced.

The analyst was of the view that if Pakistan successfully completes the 9th and 10th reviews with the International Monetary Fund (IMF), there would be a rollout of multilateral payments. “Once it happens, default probability will come down.”

He was hopeful that there would be an ease in inflation in second half of 2023, as there would be lesser demand of energy in Europe after a couple of months of winter, while oil and gas prices might come down then.

The KSE index underperformed other asset classes in 2022, including Gold (+45 percent), 1-year US$ Naya Pakistan Certificate (+36 percent) and US Dollar (+28 percent). T-Bills, money market fund and property indices posted returns in the range of 12-14 percent in 2022, according to the Topline report.

The IPO market was also impacted due to falling equity values as only 3 initial offerings/IPOs came to raise funds in 2022 as against 8 IPOs in 2021. The number of IPOs was also the lowest after 2019 when Pakistan saw just 1 IPO at PSX.

Foreign corporate selling continued in 2022 with net selling of $127 million. In the last 7 years, foreign corporates have sold shares worth of $2.5 billion at PSX.

Local mutual funds and insurance companies also trimmed their position in 2022, where mutual funds sold $166 million while insurance companies sold $128 million in 2022.

Selling was absorbed by local individuals, banks and companies with net buying of $138 million, $117 million, and $78 million respectively in 2022.