KARACHI: The Pakistani Stock Market rally saw its biggest one-day turnaround in weeks yesterday when President of USA, Donald Trump, announced the postponement of military action against Iran, which has long been awaited by the Pakistani investors who have witnessed seven days of straight losses in the markets recently.
KSE-100 index saw an upward movement of 2,248 points on Tuesday and reached a level of 164,053 points due to a relief rally in which buying emerged in various sectors at the same time based on the strong link between Iran conflict and Pakistani stock markets seen in recent weeks.
Trump Meets Gulf Country Requests
The upsurge in the Pakistan stock market can be attributed solely to the diplomatic change that occurred instantly. President Donald Trump has made an announcement about his intention to postpone the planned military action against Iran scheduled on Tuesday, due to requests made by Saudi Arabia, Qatar, and the UAE.
However, there was a very specific message in Trump’s statement that got understood by markets instantly. First, Trump said that the time is now ripe for Iran to reach an agreement. By putting things into context, Trump tried to interpret the delay as an opening for negotiations, which may eventually result in reaching an agreement on the issue that affected the global energy markets badly.
For Pakistani investors, seeing the KSE-100 index lose more than 3,800 points on Monday alone, and continue to decline for seven consecutive trading sessions, the news from Trump finally served as some indication that the geopolitical path had finally shifted towards de-escalation as opposed to continuing military escalation.
KSE-100 Up by 2,248 Points to Touch 164,053
The figures from Pakistan’s stock market rally clearly indicate how strong a relief rally there was on Tuesday. The KSE-100 Index rose by 2,248 points, making up a fair part of its losses made during the last seven sessions when the market tumbled to a point of 161,805 points. The latest figure of 164,053 points indicates how significant an influence geopolitics can have on a market expecting a long-term war rather than peace diplomacy.
The pace at which the Pakistan stock market rally took place shows just how much time investors were short on after the week of continuous sell pressure. Once the sign that market players were looking for came in the form of news that the worst-case scenario for an escalation of tensions had been delayed, they acted immediately and strongly.
ALSO READ: Bloodbath on PSX: KSE-100 Plunges 3,800 Points in Seven-Day Freefall
Interbank Rate Slides to Rs278.57
The stock market rally in Pakistan was also followed by an equally impressive performance in the foreign exchange market, which further strengthens the geopolitical relief hypothesis. The US dollar slid 3 paisas to reach Rs278.57 from its level of Rs278.60 at the end of the previous day’s trading. The rupee’s mild appreciation stems from the positive risk outlook that prompted investors to buy stocks and dollars in equal measure.
Although the fall in the dollar is not substantial, its importance lies in its direction, showing that the upturn in the Pakistan stocks market on Tuesday is due to an actual gain in investors’ confidence and not a technical rebound in a bear market.
Opportunity Window – Not A Resolution
The sudden rise in Pakistan stock market on Tuesday is certainly providing relief but that does not take away from the fact that the uncertainty that has been present during the course of the entire episode still remains. The statement by Trump only provides for a postponement and not a resolution of the use of military force.
The Gulf States, which include Saudi Arabia, Qatar and UAE, who were responsible for requesting President Trump to postpone their trip carry much weight when it comes to the diplomacy aspect of the situation. The fact that they have come out to actively intervene shows that the regional parties recognize that military escalation would pose economic harm to all economies that are part of the Arabian Sea region, the Persian Gulf or the energy supply networks of the Middle East region, such as Pakistan.
Now that the bullish momentum for the Pakistani equity market continues to be strengthened on Tuesday’s trading floor, market analysts will monitor how much the diplomatic gesture made by Trump has led to any substantial talks between Iran and the US in order to avoid the possibility of conflict.
