By Qamar Bashir

Bulls have continued their stampede at the Pakistan Stock Exchange (PSX) since the start of 2024, reaching a new milestone of 75,983 points on May 26. The market has been rising steadily, breaching psychological and physical barriers almost daily. This boom is causing even the most seasoned economic experts to scratch their heads in bewilderment and amazement. Despite sluggish economic indicators, dismal performance in agriculture, services, SMEs, and large-scale manufacturing, as well as a highly toxic political, law and order, and security situation, the PSX continues to soar.

This surge appears to be occurring in a vacuum or could be likened to a balloon that might burst at any moment, given the country’s stagnant GDP growth. Last year, the GDP growth was -1.27%, and the projected GDP growth for 2024 is 1.7%. Exports as a percentage of GDP stand at 9.06%, while imports of goods and services constitute 17.99% of GDP. Foreign exchange reserves are extremely low, around $8.1 billion. Inflation is at a staggering 38%. The unemployment rate is historically high at 8%.

The car manufacturing industry hit a historic low, producing only 79,513 units in December 2023 compared to 235,454 units in December 2022. Foreign Direct Investment (FDI), which peaked at $4,582 million in 2022, declined to $1,857 million in 2023, with only $659 million recorded from July to April 2024.

The electricity sector’s circular debt crossed PKR 5.71 trillion in 2024. Additionally, state-run commercial entities have incurred losses amounting to a staggering Rs 1.395 trillion over the fiscal years, with no visible measures taken to plug these financial holes.

Human capital outcomes remain poor, with high levels of stunting at 38 percent and learning poverty at 78 percent. Poverty rate is 40.1 percent and since 2018 7 million more Pakistanis are  living below the poverty line.

Repeated delays in implementing the International Monetary Fund (IMF) Extended Fund Facility (EFF) program and the associated decline in external financing inflows saw foreign reserves fall to critically low levels, amid high inflation and sharp currency depreciation.

Following the expiry of the incomplete EFF program, and a nine-month Stand-By Arrangement (SBA) the government continues to face a challenging macroeconomic environment. Significant downside risks include policy uncertainty, worsening external conditions, risks associated with large domestic and external financing needs, and liquidity constraints.

 On top of this, the country is in the grip of a high-intensity political crisis. The legitimacy of the government is under question due to alleged massive rigging in the 2024 elections, wheat farmers are protesting to get the government to buy their crop, lawyers are protesting against the Chief Justice of the Lahore High Court, and the judiciary is struggling against executive interference.

Yet, despite these challenges, the stock market is breaking barrier after barrier and recently touched the highest mark in the country’s history. This situation cannot be easily explained by the realities on the ground.

The stock market’s robust performance amidst a highly toxic political, economic, and financial environment in Pakistan might be driven by several factors.

The market could be experiencing a speculative bubble fueled by short-term investors seeking quick profits, and an influx of hot money from foreign investors looking for rapid returns in a volatile market. Wealthy domestic investors might perceive stocks as a safer option compared to a weakening currency or real estate.

There is also a possibility of government intervention, with state funds being used to buy back shares of specific companies, artificially inflating their prices. Incomplete information available to investors might be causing investment decisions based on partial data. High-interest rates could be making bonds less attractive, driving investors towards the stock market.

 Finally, with a stagnant economy and limited investment opportunities in other sectors, the stock market might appear to be the only viable option for some investors, despite the underlying risks.

The Pakistan Stock Exchange (PSX) in 2024 has shown a significant divergence between high turnover and market capitalization across different sectors, reflecting complex economic and market dynamics. Sectors like commercial banks, with a turnover of 39,987.618 million and market capitalization of 20,235 million, and oil and gas exploration companies, with a turnover of 18,212.720 million and market capitalization of 1,455 million, exhibit high turnover, indicating active trading.

This activity is potentially driven by speculative bubbles, an influx of foreign “hot money,” and wealthy domestic investors seeking safer investment options amid a weakening currency and unstable real estate market.

The technology and communication sector, with a turnover of 116,185.825 million and market capitalization of 266 million, also reflects this trend. The high turnover in these sectors, coupled with relatively lower market capitalization, suggests speculative trading and short-term gains rather than genuine economic growth.

Conversely, sectors such as cable and electrical goods, with a turnover of 19,212.720 million but market capitalization of only 8.56 million, and sugar and allied industries, with a turnover of 1,579.653 million and market capitalization of 83.69 million, despite substantial turnover, show low market capitalization, indicating possible undervaluation due to investor concerns about future profitability, structural inefficiencies, or regulatory challenges.

The engineering sector, with a turnover of 18,099.937 million and market capitalization of 126.34 million, and glass and ceramics, with a turnover of 247.045 million and market capitalization of 62.16 million, further illustrate this disparity.

This discrepancy underscores the need for careful analysis to understand the true health and vulnerabilities of Pakistan’s economy amidst a backdrop of political instability, high inflation, and low foreign reserves.

To protect small and middle-level investors if the market bursts in the near future, the government should take several measures. These include implementing stricter regulations on speculative trading to prevent bubbles, ensuring greater transparency and accuracy of market information to help investors make informed decisions, and creating safeguards such as investor protection funds to compensate small investors in the event of a market crash. Additionally, the government should promote financial literacy programs to educate the public about the risks and rewards of stock market investments, and provide incentives for long-term investments in stable sectors to reduce market volatility. Strengthening regulatory bodies to oversee market activities and preventing market manipulation can also protect investor interests.

The government should act now to avoid facing severe consequences in the future.

By Qamar Bashir

Former Press Secretary to the President

Former Press Minister to the Embassy of Pakistan to France

Former MD, SRBC

Dr. Muhammad Akram Zaheer

Belarus has been very close to Russia and have strong ties in trade and military cooperation. But recent events, like the conflict in Ukraine and sanctions against Russia, have made things more risky for Belarus.To deal with this risk, Belarus could try to make friends with other countries, like the European Union or China, to rely less on Russia. It could also work on building up its own industries to protect itself from problems outside the country.Inside Belarus, the government led by President Alexander Lukashenko faces challenges.

Some people are unhappy and want political changes. Lukashenko has to figure out how to keep things stable while also listening to these demands. Therefore, Belarus has to balance its old friendships with Russia, explore new partnerships, and handle its own problems at home. Recently, Belarus updated its military plans to deal with these challenges, which Russia supported because it brings Belarus closer to Moscow.Belarus and Russia have a long history together, dating back to their time in empires like the Soviet Union. They share a lot culturally and linguistically, and their presidents, Lukashenko and Putin, have a strong relationship.

In 1999, Belarus and Russia signed a treaty to get even closer, aiming for more political, economic, and military teamwork. While this “Union State” hasn’t become as powerful as the European Union, it shows they want to work together more.Russia has helped Belarus a lot during tough times, like after the 2020 election when there were protests. They trade a lot, especially in things like energy, machinery, and food. Belarus relies on cheap oil and gas from Russia, and Russia has given them loans and helped with their debts, which is really important for Belarus’s economy.

Belarus and Russia often do military exercises together, like the Zapad exercises. This shows how they work together in the military and can work together well. Both countries are part of a group called the Collective Security Treaty Organization (CSTO), which helps them with security. Belarus lets Russia use some of its military places, like radars and places for communication. Russia has promised to help Belarus with its military if there’s danger from outside, which makes their military bond stronger. Because both countries have been punished by the West, they’ve become closer in how they work together economically and politically to deal with these punishments. Belarus has supported Russia’s actions in the Ukraine conflict, even letting Russian forces use its land for moving things around and doing operations.

 This support has made Belarus more separate from the West but also more reliant on Russia. People in Belarus and Russia still do a lot together, like share media, education, and have family connections that cross borders. The relationship between Belarus and Russia is strong in many ways, like politics, money, military, and culture. Even though Belarus needs Russia more, both countries have built this partnership over many years.Belarus is very close to Russia in politics, the military, and the economy.

They have agreements like the Union State and military deals that tie them strongly to Russia. This close relationship with Russia often causes problems for Belarus with the EU, especially in Eastern Europe. Belarus is also part of the EU’s Eastern Partnership plan, which tries to create a common area with shared values and economic connections between the EU and six Eastern European countries. But Belarus doesn’t participate much in this because of its internal politics and its closeness to Russia.The presidential election in 2020 in Belarus caused a lot of disagreement and protests. This made the relationship between the EU and Belarus worse. The EU increased sanctions and supported groups in Belarus who oppose the government.

In 2021, Belarus was accused of causing a crisis with migrants at its borders with Poland, Lithuania, and Latvia as a way to get back at the EU for the sanctions. This made tensions even higher and led to more security measures and sanctions against Belarus from the EU.If Belarus makes big changes in its politics or leadership, it could improve its relationship with the EU. But Russia’s influence over Belarus is a big factor. If Russia changes its foreign policies or internal situation, it could affect Belarus’ relationship with the EU.The way the EU deals with Eastern Europe, especially how it balances democratic values and security concerns, will also affect how it deals with Belarus in the future.

Belarus is part of some regional groups. The CIS is one of them. It was made after the Soviet Union broke up and aims to help cooperation in politics, the economy, the environment, and other areas among the former Soviet countries. Belarus benefits from trade deals in the CIS, which help its economy. The CIS also helps Belarus with security and military cooperation. The EAEU is another group Belarus is in. It’s an economic union of countries in northern Eurasia. Being in this union helps Belarus trade more easily with other member countries like Russia, Kazakhstan, Armenia, and Kyrgyzstan. It also lets people move for work easily, which is good for Belarusian workers. The CSTO is a military group of some post-Soviet countries. It helps them work together for defense and security. Being in this group helps Belarus with its defense and makes the region safer.

The Union State between Russia and Belarus is another important partnership. It helps Belarus with energy and money from Russia, which is really important for its economy. This partnership also means Belarus follows Russia’s lead in politics, both inside and outside the country.The Eastern Partnership is the EU’s plan for its relationship with some post-Soviet countries including Belarus. Even though things are complicated with the EU, this partnership gives Belarus a way to talk and maybe work together with the EU on trade and human rights issues. Belarus can get help for its development projects through this partnership.

Belarus mainly looks to Russia and other post-Soviet groups for its partnerships, because it gets benefits like money and security from them. But it also tries to balance this with its relationship with the EU, looking for more ways to grow its economy and society.