By Polina Tikhonova. Originally published at ValueWalk.
As Pakistan election date nears, the Pakistan Stock Exchange shows its worst June performance in nearly two decades.
A report of stock index manipulation suggests that political elections in Pakistan may have a negative impact on stock returns. Nearly a year after Pakistan was proclaimed the top-performing market in Asia with a staggering 46% return, political events in the country have cast a shadow over the landmark Pakistan Stock Exchange success.
Around a year ahead of Pakistan election date, which is scheduled for summer 2018, Pakistan Stock Exchange keeps suffering from political events, with the KSE-100 Index finishing below the 45,000-point level on Thursday.
In May, the KSE-100 index skyrocketed 400 points to reach 52,700 level at the open amid news that Morgan Stanley Capital International (MSCI) upgraded the Pakistan Stock Exchange (PSX) to Emerging Market status for the first time in over nine years. While the upgrade opened the door for global investors that track the index with $1.4-1.7 trillion in hand, the stock index is now undergoing negative Stock Index Manipulation, and experts say political events are to blame.
Pakistan Election Date Nears, But Why Does Pakistan Stock Exchange ‘Hate’ It?
As it’s a little more than a year before Pakistan election date in 2018, Pakistan stock exchange may have started reacting to political uncertainty early. It’s not just the uncertainty over the upcoming election in 2018, but also the ongoing Panama case that investigates Pakistani Prime Minister Nawaz Sharif’s alleged ties to corruption.
Pakistan stock exchange is also believed to be underperforming due to external account deterioration as well as consequences of the government’s federal budget for fiscal year 2018 seem to be impacting Stock Index Manipulation. In the new budget, the government ignored key proposals from the Pakistan Stock Exchange, and instead enforced stricter tax measures on investors and companies.
However, the impending Pakistan election date may be the main culprit behind Pakistan Stock Exchange’s weakening performance. A new study into Stock Index Manipulation states that it’s not an unprecedented behavior of the stock exchange, as the “decline of points in KSE-100 index due to any political change is a normal behavior for stock exchange market in Pakistan.”
The International Journal of Accounting and Economics Studies published a study into Stock Index Manipulation on Wednesday, offering an evidence that political events and Pakistan Stock Exchange performance are tightly connected.
Pakistan is ‘Unreliable Place for Investment’ – Study
The study reviewed three elections in Pakistan – in 2002, 2008 and 2013 – and concluded that political events can have either a significant negative impact on stock returns or, on the contrary, a positive impact. In the case of 2002 and 2008 elections, Pakistan Stock Exchange was bleeding from uncertainty even in the pre-election period.
In 2013, however, the victory of Nawaz and forming an investor-friendly government spurred the growth of the KSE-100 index. Fast forward to the present day, the latest stock index manipulation suggests that investors have their doubts about the upcoming Pakistan election date in 2018. Due to the heightened sensitivity of Pakistan Stock Exchange to political events, the study concludes that the country “is likely to be considered as unreliable place for investment.”
However, Pakistan is far from the only country whose stock exchange is deeply influenced by political elections. The study, authored by experts in finance and accounting, argues that stock exchange of most developing countries can be easily influenced by political events and political changes in a negative or positive manner.
Pakistan Stock Exchange Shows Worst June Performance Since 1999
While Pakistan Stock Exchange never stood out in the past nearly two decades, the recent downward trend in Stock Index Manipulation has taken investors and finance experts by surprise given the stock exchange’s newly-achieved Emerging Market status and the fact that it maintained its dominance in the MSCI FM Index in 2016.
In recent weeks, political events, the impending Pakistan election date as well as doubts from investors collapsed Pakistan Stock Exchange, posting a negative return of 2.6 percent and underperforming on both Emerging Market and Frontiers Market indexes of MSCI.
Last month, Pakistan Stock Exchange showed its worst June performance since 1999 and the worst month since March 2015, according to The International News. Top Pakistani and international financial experts expected the country to witness inflows of $300 to $500 million following Pakistan Stock Exchange’s upgrade to the Emerging Market status, but in reality there was an outflow of $82 million due to the recent downward trend in Pakistani Stock Index Manipulation.
Pakistan’s weight in the Emerging Market index is only 0.14 percent, which is a far cry from its weight in the Frontier Market, which was 9 percent.
Pakistan Stock Exchange Hates Uncertainty Whether Nawaz Government Stays or Falls in Elections 2018
While the upcoming Pakistan election date probably takes the largest portion of blame for the latest negative Stock Index Manipulation, the Pakistan Stock Exchange may have also reacted to the deteriorating external account situation in the country. As of June 30, 2017, the current account deficit during the 10 months of the fiscal year soared to $8.9 billion, the highest in nine years. At the same period last year, it was $3.2 billion.
In addition to the weakening Pakistan Stock Exchange performance, there is a high probability of sharp currency depreciation amid the vast account deficit. Interestingly, financial experts projected the KSE-100 index to reach a staggering 56,000 points by the end of this year, up more than 8,000 points from January 1, 2017.
Earlier this week, Pakistan’s rupee dropped the most in nine years, after the central bank was said to have devalued the currency as the country shows signs of panic and uncertainty ahead of the upcoming Pakistan election date. While it’s unclear if recovery is in the cards for the Pakistan Stock Exchange in the coming weeks, the government will have to calm investors and eliminate the growing feeling of uncertainty in order to pave the way for positive Stock Index Manipulation ahead of the election.
Whether the government of Nawaz stays after Pakistan election date in 2018 or goes away, the Pakistan Stock Exchange hates uncertainty – and there’s no doubt about it following the index’s weakening performance.
Source: Pakistan Stock Exchange Manipulation
The post Report Shows Stock Index Manipulation As Pakistan Election Date Nears appeared first on ValueWalk.
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