Islamabad, January 27, 2024 – Stock analysts at Topline Securities Limited anticipate the formation of a coalition government in Pakistan following the upcoming general elections scheduled for February 8, 2024.
The analysts suggest that after facing uncertainties, the electoral process appears to be on track, and elections are set to take place as scheduled, marking the beginning of a new five-year term (2024-2029) for the National and Provincial Assemblies.
Topline Securities had previously expressed concerns in a detailed strategy note titled ‘Stock Market Recovery Has Just Begun; Index Likely to Reach 75k in 2024,’ dated November 18, 2023. However, the analysts now assert that the political landscape has stabilized, dispelling earlier fears of potential delays in the election process.
The smooth conduct of the elections is crucial for a stable transfer of power to an elected government, alleviating concerns of bilateral and multilateral lenders, including the International Monetary Fund (IMF). Pakistan is currently facing a severe external debt repayment challenge, and the new Stand By Agreement (SBA) with the IMF is deemed crucial to anchor policies and stabilize the economy during the transitional period.
As the election date approaches, political activities and campaigns have been observed to be less intense than in previous elections. This subdued atmosphere could be attributed to a potential lack of interest from political parties or reduced competition in many constituencies, particularly after the Pakistan Tehreek-e-Insaf (PTI) lost its “Bat” symbol.
Despite the upcoming elections, the manifestos and promises of major political parties seem to focus more on popular measures to gain public confidence amid record-high inflation, rather than addressing key economic challenges faced by Pakistan.
Analyzing the past performance of major political parties during their last tenures, the Pakistan Muslim League-Nawaz (PML-N) and PTI are noted for relatively better economic indicators compared to the Pakistan Peoples Party (PPP). Bloomberg’s recent analysis, based on the Misery Index, ranked PML-N with the best economic record (score 14.5%), followed by PTI (score 16.1%), and PPP (score 17.2%).
Speculation among investors centers not only on the election outcome but also on whether the new government will secure a majority or form a weaker coalition. According to political experts and recent surveys, it appears that PML-N is positioned to lead a new coalition government.
Investor confidence and market reactions are expected to hinge on whether one party secures a majority, signaling stability, or if a coalition government with smaller parties emerges, potentially struggling to implement essential economic reforms.
The role of the new government, particularly its Finance Minister, will be crucial in managing economic challenges and negotiating with international lenders, including the IMF, for a long-term program that requires substantial reforms.
Despite a recent market rally, the Pakistan Stock Exchange is currently trading at a Price-to-Earnings (PE) ratio of 3.7x based on estimated 2024 earnings, significantly lower than historical averages. Topline Securities recommends focusing on high-quality private sector companies with strong cash flows, particularly in sectors like Cement, Steel, and Banks, as these are expected to benefit from anticipated policy rate declines and improved sales. The analysts predict continued market recovery in 2024, with the benchmark KSE-100 total return index reaching 75k by December 2024.
