Financial support from multilateral lenders has boosted investor confidence — and returns — across troubled emerging and frontier markets in recent months, as funds were approved or disbursed for countries including Kenya, Tanzania, Senegal, Ukraine, Ghana and Ivory Coast. Other sovereigns in Africa, including Egypt and Mozambique, are expected to have their loans approved soon.

Inexpensive valuations are helping Pakistan’s market as 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.

“Overall, the valuations are dirt-cheap with significant room for rebound,” said Ali Raza, head of international equities trading at BMA Capital, in Karachi. 

Pakistan dollar bonds advanced, with the paper due in 2024 gaining 17 cents in the past week. The 8.25% 2024 bond was indicated 3.1 cents higher to trade at 73.6 cents on the dollar on Monday, a level last seen about a year ago in August. The gains come after dollar bonds notched their best-ever week. Pakistan’s currency market opens Tuesday.

Eoin Treacy's view

The jump in global interest rates and steady removal of liquidity has weighed heavily on frontier markets. The end of the USA’s war in Afghanistan, last year’s massive floods and slow recovery, as well as political upheaval have added to the negative perception of the Pakistan market’s potential.

Historically, Pakistan has traded like a high beta version of India. That relationship has broken down over the last several years as one scandal or disaster after another has weighed on valuations. The lifeline of an IMF loan defrays some of the risk of an imminent default, so a rebound from deep oversold territory is underway. It will need to be followed up with some sign governance is improving if recovery beyond a good-sized bounce is to be given the benefit of the doubt.

The Global X Pakistan ETF rallied today to test the 200-day MA. A sustained move above it will be required to break the medium-term downtrend.