Is Pakistan going to default? Or is going to crash? Maybe it’s time to leave Pakistan? Investing in Pakistan. These questions and lines are very common these days.
However, there is a lot more to the story. The stock exchange market tells us a different story and we will look right into it.
Investing vs Consuming
Alright, let’s face the elephant in the room, what do I even mean by this? It is very true that the deprecation of the Pak Rupee (PKR) against the US Dollar (USD) is increasing every day.
This has invited a spike in the inflation rate (31% as of Feb 2023) of Pakistan.
All these economic indicators point us toward a recession. The economic turmoil has taken the whole country by shock and every common man is discussing these indicators as if they were finance experts. Well, it’s time you heard some more facts.
The economic crisis is very real
I am not here to advocate that conditions are very promising, to be honest, they never are! The nature of markets themselves is one such that it prevents the market from having a stable rate.
That said, it is not the same for business. What I mean by this is that whenever you are considering being an investor or a businessman you have to STOP thinking like a consumer.
So how to think like an investor/businessman?
Think like an investor/businessman
The most common principle for a business to thrive is our old economic principle of Supply and Demand. As long as there is a demand in the market, the supply will be provided, at a cost of course.
The uncertainty in the market may cause people to buy less or change the product, but it is an intelligent businessman who sees the opportunity in the market and an intelligent investor is someone who finds the right business to invest in.
A basic economic principle of inferior goods would easily click an intelligent investor’s mind. In desperate times, consumers shift towards inferior goods.
Moreover, the depreciation of the rupee would be a big opportunity for businesses operating in foreign currencies.
Can you imagine the increase in the earning of someone with 300 dollars these days? $300 = 81,809.64 PKR as of today. While the average income of a normal Pakistani is 24,028 PKR.
Earning 300 USD in Pakistan is way easier than earning 24,028 on a job. You get the point.
Now consider this same principle for software houses, freelancers, remote job-holders and even exporting firms. The prospects of earning go through the roof.
The key point is that all the conditions work towards a balance, if there is an increase in CPI (consumer price index) there will be a way to increase that income.
There is a simple balance in the life of everything if we try to understand it. The equilibrium is the property of the market, whether increasing or decreasing.
The results of our analysis are simple and even simpler to understand. We will use the following charts in our analysis.
The following data has been received from Investing.com.
- KSE-100 Index
- S&P-500 Index
- USD/PKR Index
We will observe the changes in the indices for the last 365 days.
Let’s observe the changes
The increase in the value of the US Dollar (USD) against the Pak Rupee (PKR) in over a year has been 100 PKR. In March 2022 the value was 177 PKR=1 USD, and now in march 2023, it is 277 PKR=1 USD. The yearly change is 55.72%.
The decrease in the KSE-100 index has been. In March 2002 the value of the KSE-100 index was 43,628 and in march 2023 the value is 41,440. The yearly drop in the market is 4.47%.
The decrease in the S&P-500 index over one year has been by 161.58 USD. In march 2022 the value of S&P-500 was 4210 and in March 2023 it is 4048.42. The yearly change is 5.11%.
Now let’s compare the inflation rates between USA and Pakistan.
The Annual Inflation rate of the USA is under 7% while the annual rate of inflation in Pakistan exceeds 31.5%.
The irony is that the markets do not seem to affect by the change in the forex market, the ups and downs in inflation rates, or anything.
To conclude, I will paraphrase the Great words of Warren Buffet that while investing you do not need to know stocks but you need to consider the business. So instead of wild predictions, look at the market’s businesses, if these businesses can withstand such tough economic barriers just imagine the results when the conditions start to get better :).