Political uncertainty sends PSX plummeting over 1,721 points

KARACHI: Stocks hit a tailspin on Friday, losing over 2%, amid escalating political uncertainty, as investors weighed a report by BMI, a Fitch Solutions company, which forecasted that the government to last only 18 more months — triggering a profit-selling spree.

Pakistan Stock Exchange's (PSX) benchmark KSE-100 Shares Index plunged to 80,117.89 points, losing a massive 1721.97 points or 2.1% compared to Thursday's close of 81,839.86 points. 

The main index of the country’s “high-performing” capital market began on a positive note, reaching an intra-day high of 81,939.84. However, investors soon went on a selling spree to hedge their bets amid a fierce judicial battle between the government and opposition.

Meanwhile, BMI, a Fitch Solutions company, in a risk assessment report, has projected a political disruption in Pakistan. “Pakistan’s next parliamentary election is scheduled for 2029. However, it is highly likely that the country will see a change of government before this date. 

"No Pakistani prime minister has ever completed a full five-year term in office,” stated BMI in its Pakistan Country Risk Report for the fourth quarter of calendar year 2024, adding that political risk in Pakistan would remain highly elevated in 2024 and 2025.

"This [coalition government] administration, lacking popular support, faces the daunting challenge of managing an economy that is beginning to recover following the 2022/23 crisis and addressing fragile security concerns."

In its post-market report, brokerage house Ismail Iqbal Securities said this significant decline was driven mainly by profit-taking, as investors seized the opportunity to lock in gains amid market uncertainty.

Sectors including banks, fertiliser, power, technology, E&P, cement, and textile suffered losses.

Speaking to Geo.tv, EFG Hermes Pakistan's CEO Raza Jafri said: "Concerns over politics may be prompting today's pressure at the PSX, especially after the recent strong rally." 

However, he added that it is difficult to see disruption at this stage and value buyers may come in if the dip intensifies.

Saad Ali, Intermarket Securities Director of Research, told Geo.tv,  "I believe the drop was partly due to profit-taking after a strong rally since news of the International Monetary Fund (IMF) programme." 

"But the recent increase in political noise after the Supreme Court decision on reserved seats may have dampened investor sentiment. Some corners of the market may be factoring in a pause in monetary easing in the July MPC."

The stocks close to an all-time high index on Thursday, gaining 684.25 points or 0.84%, amid favourable economic policies, international rating reviews, and international agreements, especially a staff-level agreement with the IMF.