NORMALLY, stock markets rise gradually. In recent months, however, Pakistan’s stock market has soared to one record high after another. On Friday, the unrelenting bulls pushed the benchmark KSE-100 close to 98,500 points, with the index crossing the 99,000 mark during intraday trading. Stock markets are usually viewed as a ‘barometer’ of the health of an economy: the better the economy the better a bourse’s performance. Nevertheless, there appears to be a bizarre disconnect between Pakistan’s surging stock market and the sad state of both the nation’s economy and politics. Yet those invested in the stock market do have an explanation for the unusual growth momentum seen in the last few months in spite of the discrepancy between the market’s buoyancy and the troubles facing the economy and democracy.

On the political front, market participants do not see any credible threat to the present dispensation in spite of occasional protest calls issued by the PTI’s incarcerated leader Imran Khan. Political risks to economic stability are now seen as subsiding, following the 26th Amendment to the Constitution that has significantly curtailed the powers of the superior judiciary. The approval of the new IMF funding programme for the government and the slight upgrade of the sovereign credit rating of the country has strengthened this impression. Hence, we are witnessing the market continue its rallies regardless of the ‘final’ protest call from the PTI for a protest march on Islamabad on Sunday. On the economic side, stock investors find macroeconomic indicators stabilising, with the November inflation dropping to below 5pc, the current account running a surplus, borrowing costs plunging and bond yields dipping. On top of that, the IMF is expected to keep breathing down the government’s neck for the execution of structural fiscal, institutional and governance reforms for the realisation of its programme goals and debt sustainability. Still, some are careful to not discount the risks to the ongoing market momentum. These include resurgence of political uncertainty amid the eruption of a new wave of protests and violence, uncontrolled government spending, feared derailment of the IMF programme, and an oil price spike on the back of the present tensions in the Middle East. The current stock market boom may likely continue into the next year as expected by many. Or it may be just another bubble waiting to pop.

Published in Dawn, November 23th, 2024