The benchmark KSE-100 Index of the Pakistan Stock Exchange (PSX) delivered an extraordinary return of 84% in 2024, marking the highest annual percentage gain in 22 years, second only to the 112% return in 2002. In US dollar terms, the index gained 87%, making it the second-best performing market globally after Argentina, according to a report by Topline Securities. The return includes dividends received during the year.

Key Drivers of Market Performance

Topline Securities attributed the stellar performance to improving macroeconomic indicators under the new International Monetary Fund (IMF) program. Key factors included:

• Falling inflation.
• A 900 basis points (bps) aggressive monetary easing by the State Bank of Pakistan (SBP).
• Declining yields on fixed-income instruments.
• Improved external accounts and a stable currency.
• Political stability.

These factors collectively boosted investor confidence, driving the market to new heights.

Market Capitalization and GDP Ratio

PSX’s market capitalization surged by 63% in 2024, reaching $52 billion. However, it remains below its 2017 peak of $100 billion, primarily due to rupee devaluation, large dividend payouts, and fewer new listings. The market cap-to-GDP ratio improved to 12% in 2024, up from 9% in 2023, but still lags behind the 10-year average of 16%.

Record Trading Activity

The significant rise in the KSE-100 Index was accompanied by record-breaking trading activity.

• Daily Volumes: Average daily trading volumes in the cash market rose by 76% to 569 million shares, the highest ever recorded.
• Traded Value: The average daily traded value in the cash market increased by 122% to Rs. 22 billion, the highest since 2007.
• Futures Market: Total traded volume and value in the futures market also saw significant growth, rising by 68% and 80% to 184 million shares and Rs. 8 billion per day, respectively.

KSE-100 Outperforms Other Asset Classes

The KSE-100 Index outperformed all other major asset classes in Pakistan in 2024, including:

• Pakistan Investment Bonds (PIBs): +27%.
• Gold: +24%.
• 1-Year PKR Naya Pakistan Certificate: +22%.
• T-Bills: +21%.
• US Dollar: +1-4%.
• Property: -11% to +14%.

IPOs and Sukuk Listings

The PSX saw a revival in initial public offerings (IPOs) in 2024, with seven IPOs (including two on the GEM Board) compared to just one in 2023. These offerings raised Rs. 8.4 billion, the highest amount since 2021.

Additionally, the government listed shariah-compliant sukuk bonds on the PSX, raising Rs. 2 trillion through 15 auctions in 2024. However, secondary market trading of these bonds remained thin, with daily volumes averaging less than Rs. 163 million.

Local Buyers Dominate as Foreign Investors Exit

Local mutual funds and insurance companies emerged as the largest buyers in 2024, capitalizing on falling interest rates.

• Mutual Funds: Recorded net buying of $183 million (Rs. 51 billion), the highest since 2017. This shift was driven by a move from fixed-income instruments to equity funds amid lower interest rates.
• Insurance Sector: Net purchases totaled $60 million (Rs. 17 billion), reversing three years of net selling.

These local buyers absorbed the selling pressure from foreign investors, who were net sellers due to passive fund outflows. Three major international funds—iShares Frontier, Select EM ETF, and Vanguard—exited or were near exiting Pakistan in 2024, selling $210-220 million worth of equities. Despite this, overall foreign portfolio investment (FIPI) stood at -$89 million.

A Historic Year for PSX

The KSE-100 Index’s performance in 2024 reflects a historic year for the Pakistan Stock Exchange, driven by improving economic fundamentals, increased trading activity, and strong local investor participation. As the market enters 2025, the focus will remain on sustaining this momentum amid evolving economic and political conditions.