The Pakistan Stock Exchange (PSX)’s 22% surge is merely the beginning. Stock markets are typically evaluated using the Price to Earnings (P/E) ratio—how many Rupees (price) investors are willing to pay for an asset generating (earning) Rs1 profit per year. Coupled with the global context of a 5% rise in US interest rates, the attractiveness of Emerging/Frontier markets has markedly diminished. In such a cycle, stock market investors are clamouring for “more.”Many listed companies are already trading at appealing asset values. The next phase of economic returns will hinge on sustainable earnings (“E” based) recovery, requiring rigorous due diligence and prudent selection of investments.
