Dollar bonds and stocks in Pakistan are poised for the worst month since 2023, as escalating tensions with neighbour India roil investor sentiment, according to Bloomberg.
Pakistani stocks are underperforming peers in April while dollar bonds and the rupee also fell, amid the threat of war with neighbour India. Pakistan’s Information Minister Attaullah Tarar on Wednesday said India would carry out military action in the next 24 to 36 hours, adding Pakistan would respond “assuredly and decisively”. Relations between the nuclear-armed neighbours deteriorated after 26 people were killed on April 22 in an attack on an area in the Jammu and Kashmir region. New Delhi has accused Pakistan of involvement, a claim Pakistan has denied.
“The outlook in the near term is uncertain and therefore we can expect further slight weakness since additionally, the US tariffs are an overhang,” said Thomas Hugger, chief executive officer and fund manager at Asia Frontier Capital Ltd in Hong Kong.
“Any de-escalation of the tension will obviously calm down the nervousness of investors regarding further deterioration of the fragile relationship between the two countries and we can expect a small rally in bond and equity prices,” Hugger added.
Dollar bonds have handed investors a loss of nearly 4.0 per cent this month, while equities are down almost 3.0 per cent. Meanwhile, Indian assets are proving relatively immune for now with stocks and local bonds up this month.
Ahead of the incident, investor sentiment towards Pakistan was improving with a rating upgrade and falling oil prices. Stocks were coming off the biggest annual gain in 22 years, setting the stage for further gains as economic activity picked up in the country.
“The fall in bond prices in recent days offers good entry points,” Avanti Save, head of Asia credit research and strategy at Barclays Bank Plc, wrote in a note. She maintains an overweight rating on the country. Separately, Reuters reported that Pakistan’s international bonds dropped more than 1 cent on Wednesday after Islamabad said it has “credible intelligence” that India intends to launch military action soon as tensions escalate between the nuclear-armed neighbours.
The 2036 bond suffered the biggest decline, falling 1.3 cents to be bid at 71.85 cents in the dollar, Tradeweb data showed, though bid-ask spreads of around 1 cent pointed to limited liquidity.
Relations between the two countries have been fraying since an April 22 attack on tourists in Indian Illegally Occupied Jammu and Kashmir (IIOJK) that killed 26 people. —News Desk
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