Good stocks?

Pakistan’s stock markets have been outperforming other stock markets. Based on an analysis of the performance of the KSE-100 between January and July 2016, the Indian edition of the global business magazine, Quartz, has confirmed that the KSE-100 is the best performing Asian stock market as well as being the fifth best performing global stock market. The KSE-100 recently hit a high of 39,000 and looked set to cross the 40,000 barrier. The headlines make it great news, but there remain questions over whether the growth in the stock market is a product of genuine economic recovery, or a product of laxer regulations on the part of the government. Our governments have often used questionable measures to increase investment in stock markets, including an amnesty announced in 2012 to stock market investors, which allowed them not to declare the source of their fund. The benefit was obvious: the trade volume in the KSE-100 had doubled by 2014. This came after the KSE-100 had to be shut down twice over the last 15 years – in 2002 after a stock market crash and then in 2008 after the global financial meltdown.

The KSE-100 only returned to the emerging markets index last month after an eight-year hiatus based on the volatility of its stock market. Recovering from such a lowly position, frowned upon by international investors, the KSE-100’s recovery to become Asia’s best performing stock market is remarkable. Despite the positive inputs into the economy, such as infrastructural spending and the promise of CPEC-related investment, Pakistan’s economy remains far from healthy. Financial stability has come at the cost of an IMF bailout. The country is nowhere close to being out of the economic doldrums. The collapse of the agricultural sector last year, which caught the government by surprise, only confirms no one knows how healthy or unhealthy the economy really is. Another year of poor agricultural performance is sure to hit other sectors, including manufacturing and services, who are only barely recovering from the two-decade-old power crisis in the country. The indicators within the KSE are also not all positive. Till 2014, only about 25 percent of the companies listed with the stock exchange were being actively traded. The stock exchange remains vulnerable to political instability and terrorism. These factors raise a different question. Has the Pakistani stock market reached its peak? Miracle growth in stock performance cannot be sustained without a genuine economic recovery. The KSE-100 may be a great place for stock investors to make a quick profit, but its attractiveness to long-term investors will need a genuine economic recovery in the country.