Pakistan stocks surge most in three years on IMF loan deal

Pakistan’s key stock gauge surged by the most in over three years on July 3 after the nation clinched an initial $3 billion loan deal from the International Monetary Fund, easing default fears.

The nation’s key benchmark KSE-100 Index rose 5.8 per cent at 9:32 a.m. local time, triggering a one-hour market halt. Trading in the nation’s stocks had reopened on July 3 following the three-day Eid holiday. The currency market remained shut through June 27, Bloomberg reports.

The rebound comes as the country secured a lifeline from a potential debt default last week after a draft agreement with the IMF. Pakistan is going through its worst economic crisis on record with sky-high interest rates and inflation.

“This IMF arrangement provides some comfort to investors over Pakistan’s ability to overcome short term external repayments,” said Ruchir Desai, fund manager at Asia Frontier Capital Ltd. based in Hong Kong. “I would say next few weeks market should do pretty well.”

Concerns related to the slew of negative headlines recently ranging from political turmoil to the risk of a debt default and sinking rupee had sent investors fleeing, with the KSE-100 Index becoming the world’s cheapest equity benchmark.

“Local equities open strongly driven by positive sentiment following the successful arrangement with the IMF,” said Ali Raza, head of international equities trading at BMA Capital, in Karachi. “Overall, the valuations are dirt-cheap with significant room for rebound.”

Pakistan also faces some $23 billion of external debt obligations coming due in the fiscal year starting July — more than six times the nation’s foreign-exchange reserves.

Meanwhile, Pakistan dollar bonds advanced, with the paper due in 2024 gaining over 20 cents in the past week. The 8.25 per cent 2024 bond is indicated 0.6 cents higher to trade at 71 cents on the dollar on July 3, a level last seen about a year ago in August. The gains come after dollar bonds notched their best-ever week.