Thursday May 23, 2024

Emerging optimism

By Dr Farrukh Saleem
March 31, 2024
Stockbrokers watch the latest share prices during a trading session at the Pakistan Stock Exchange (PSX) in Karachi on February 3, 2020. — AFP/Files
Stockbrokers watch the latest share prices during a trading session at the Pakistan Stock Exchange (PSX) in Karachi on February 3, 2020. — AFP/Files

Pakistan has issued eight international bonds (loans) and Sukuk (Islamic bonds) that mature at various times, ranging from April 15, 2024, to April 8, 2051. Interestingly, the prices of these bonds across all maturities have been rising in recent weeks. This means more investors are interested in buying them, which is a sign of confidence in Pakistan's ability to repay these debts when they come due. This doesn't necessarily mean everything is perfect. It does not mean that the upward trend will continue forever. Overall, the rising prices of Pakistan’s bonds and Sukuk are a positive sign.

Bank of America, the US's second-largest bank, citing reduced political uncertainty post-elections, has upgraded Pakistan's dollar bonds to "overweight", recommending investors to increase their allocation in Pakistani bonds compared to other options. What really prompted Bank of America to make this recommendation? Bank of America believes that the recent Pakistani elections have contributed to a reduction in political turmoil, thereby improving the economic outlook and reducing the perceived risk associated with Pakistani bonds.

Moody’s Investors Service, one of the top three global rating firms, changed its outlook on Pakistan’s banking sector from “negative” to “stable” citing its solid profitability, stable funding and liquidity, which it said “provide an adequate buffer” to withstand the country’s macroeconomic challenges and political turmoil. Moody’s further said that the economic and fiscal pressures were easing for the country.

Goldman Sachs Group, Inc, the second largest investment bank in the world by revenue, believes that Pakistan is overcoming a fractured election mandate, as the leaders of the emerging coalition understand the gravity of the economic crisis and will work to secure International Monetary Fund aid. Goldman Sachs adds that while near-term political uncertainty is still high, we think idiosyncratic risks are likely to be resolved.

On the domestic front, despite facing economic challenges, Pakistan's corporate sector demonstrated resilience. Data from the Pakistan Stock Exchange (PSX) reveals that 83 listed companies, representing a staggering 88 per cent of the KSE-100 Index's market capitalization, reported a combined after-tax profit of Rs1.66 trillion. This signifies a robust 45 per cent increase compared to the previous year. The KSE-100 Index is at a historical high.

While Pakistan faces ongoing challenges, the recent surge in prices of Pakistan's bonds and Sukuk, coupled with positive assessments from global financial institutions like Bank of America, Moody’s Investors Service, and Goldman Sachs, paints an encouraging picture for the country's economic prospects. While challenges persist, such as lingering political noise and ongoing macroeconomic pressures, the collective confidence displayed by investors and analysts alike underscores a growing belief in Pakistan's ability to navigate through turbulent times.

Moreover, the resilience demonstrated by the domestic corporate sector, as evidenced by robust profit figures, further bolsters the optimism surrounding Pakistan's economic trajectory. We need to capitalize on this newfound investor confidence. We need to tackle our economic issues head-on. We need to translate this positive momentum into a brighter future. This confluence of positive indicators has created a critical window of opportunity. The two keys to success: focused leadership and strategic planning.

The writer is a columnist based in Islamabad. He tweets/posts @saleemfarrukh and can be reached at: