Pakistan Assets Signal Shaky Optimism As New PM Candidate Named

(Bloomberg) -- Pakistan’s stocks climbed for the first time in four days, while dollar bonds and rupee were largely steady as the nation looks set to get a new government with Shehbaz Sharif as prime minister.

The KSE-100 Index jumped as much as 2% on Wednesday, headed for the best day since Jan. 1. The country’s dollar bonds fell slightly, with notes due in 2031 down 0.3 cents to 65.7 cents on the dollar. 

Former premier Shehbaz was nominated as the country’s new leader on Tuesday after a rival group pledged support, ending a deadlock after last week’s national elections delivered a split mandate. Sharif, who was prime minister from 2022 until last year, was crucial in securing the nation’s $3 billion International Monetary Fund bailout, which is set to end in April.

“The initial anxiety will end when the new government comes to power,” said Amjad Waheed, chief executive officer in Karachi at NBP Fund Management. “The stock market will change direction as the government is formed and it will gradually start to rise.”

Pakistan’s markets had been under pressure after Thursday’s inconclusive polls, with investors waiting for a new administration to announce policies to tackle the nation’s economic crisis and plans for another bailout.

Stocks had rallied going into the election, with the KSE-100 Index being the best-performing gauge in dollar terms among 90 major indexes tracked by Bloomberg since late June, when the nation clinched its IMF deal. The rupee is also among the best-performing currencies in Asia in the period.

“It is clear that another coalition government is in formation, leading to stability,” said Memoona Tanveer, head of corporate and high networth individuals at Dawood Equities Ltd. “Rupee and dollar bonds should remain steady as current account deficit is improving, and improvement in reserves has quashed all speculations of default.” 

The breakthrough in the political impasse could still lead to an unstable administration, according to some investors. A coalition government may not be very united and politically strong, and it will face challenges in securing consensus to pursue difficult, but necessary reforms, Moody’s Investors Service said Wednesday.

The new government’s first task will be to lead negotiations with the IMF for a new loan program. Pakistan faces $25 billion of external debt payments in the fiscal year starting July, about three times its foreign-exchange reserves. 

The administration “will most likely be a weak one that will face many challenges from the first day,” said Bilal Khan, head of institutional equity sales at Arif Habib. “The declines this week have created an overhang, which will need some very positive triggers to overcome.”

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