Congratulations to #PSX investors as the #KSE100 reaches another all-time high at 60,745 points. The question now is: Is this sustainable?
The index is on the rise due to positive sentiment following a significant downturn when investors pulled liquidity from the market.
The government has introduced promising initiatives like SIFC, which aims to attract substantial Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) to Pakistan. However, it remains an initiative without a concrete plan detailing how and when the inflow of dollars will materialize.
Another factor contributing to the bullish market is the anticipation of a reduction in interest rates. However, a critical consideration is whether this is indeed the case.
Calculating the real interest rate, which is adjusted for inflation, reveals a concerning picture.
Real interest rate= inflation adjusted.
Nominal Interest rate: 22%
Inflation: 23.55%
Real interest rate= -1.55%,
your money is losing -1.55% annually if kept in the bank.
Given this negative rate, questions arise about how the current government can effectively lower interest rates. External debt remains substantial, with $24.5 billion due in FY24. Governor State Bank expects $11.3 billion to be rolled over.
Unfortunately, despite the positive market indicators, stability remains a challenge for Pakistan's development. There is a lack of clarity on key economic indicators such as GDP, GNP, population, inflation, interest rates, and trade balances. No political party has presented a comprehensive plan for the economy for the next 5-10 years.
Addressing these concerns and providing a clear economic roadmap will be crucial for sustaining investor confidence and fostering long-term economic stability.
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