Impact of current macroeconomic development on stock market

The fluctuation in macroeconomic indicators causes a very strong influence on the stock market of any country. As Pakistan is a developing country and its stock market is not robust as of developed countries like the USA, UK, China, and many more.

Throughout the pandemic, almost all the countries stopped flight operations, imposed lockdown, quarantined the affected people; these all were the measures taken to stop spreading the virus. These measures harm the economic activities and lead to many business failures.

Small and large both types of business were facing many challenges. They were looking for bailout packages from the government and it was very difficult for them to retain the employees. These caused a decline in economic activity and affected not only the stock market but also the commodity as well as reducing the trade among countries. The developed stock markets like the United States, Europe, Hang Seng index, and Shanghai stock exchange reflect negative returns.

Trade plays a very vital role in the economy because this country gets foreign reserves which in turn support the balance of payment and control the exchange rate of the country. When covid started to affect Pakistan so, the authorities decided to close the industries which harm the economy. So due to these stock markets started to decrease and were their lowest value in the past five years. The major reason for declining was that foreign investors became insecure and they started withdrawing their foreign portfolio investment from Pakistan.

Then IMF plays its role and provides a grant of $1.4 billion to Pakistan to deal with this situation of pandemic and funds provided from the World Bank. After this the government of Pakistan also took some measures in which they reduced the interest rate which attracts the investor to invest and also provide economic packages to boost the small and public business. The government also fixed the 100 billion for the exporters to increase the export of a country. So all these timely measures bring a positive change and boost the stock market of Pakistan.

Some of the measures taken by the government and forecasts by the IMF the current scenario is showing that by 2021 the stock market of Pakistan will continue rising. As per IMF statistics, the reason for rise in the market is to decrease the inflation rate in the country.

A decrease in inflation causes an investor to get more real returns on their assets and in turn it will raise the capitalization and trading in the stock market of Pakistan.

According to the IMF data, after the pandemic interest rate decline the state bank also decided to keep the policy rate the same in 2021 during the meeting of the Monetary Policy Committee (MPC). So this policy will be beneficial for those people who want to take loans and initiate their business activities or want to expand their firm’s operation. The low-interest-rate also has the potential to attract domestic as well as foreign investments which in turn increase the foreign reserves of a country. In the first quarter of 2021 current account of Pakistan is surplus as compared to the past five years that is $12.9 billion its increases because of a rise in trade balance and remittances. Companies that contributed to the increase in exports are cement, rice, textiles, chemicals, and pharmaceutical sectors.

In the time of pandemic when inflation is at lowest and interest rate are also low. So according to this situation, the investor should invest in the stock market of Pakistan. As discussed in the above paragraph exports of Pakistan are increasing and the major reason for the rise are some of the industries of Pakistan like in the previous year 2020 cement industry earned a profit of about US$72.29m as compared to US$66.77m in 2019. Whereas pharmaceutical companies’ exports rise by $200 million to $300m.

As per the PBS textile industry exports are also rising through the denim segment, knitwear, and home textiles. So these are some of the success stories of Pakistan in which investors should think and invest in this favorable time period in the stock market of Pakistan.



The writers are MPhil scholars at Pakistan Institute of Development Economics (PIDE), Islamabad.

DailyTimes, 19 Apr, 2021

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