(Bloomberg) – Stocks in both Pakistan and India have surged following a ceasefire agreement between the two nuclear-armed nations, which have experienced military confrontations along their border.
Pakistan’s KSE-30 index jumped 9.3%, leading to a temporary trading halt, while the NSE Nifty 50 index in Mumbai increased by 3.8%. With tensions easing, investors could shift their focus back to the economic prospects of South Asia. Additionally, a temporary trade agreement between the US and China further boosted market confidence.
“Considering the rapid escalation we witnessed last week, the developments over the weekend are a positive sign,” commented Vivek Dhawan, a fund manager at Candriam. “This could redirect focus towards the Indian growth narrative.”
Despite some positive movement, investors were feeling anxious. The Nifty dropped over 1% on Friday, marking its largest decline in more than a month, while the rupee struggled, being one of the worst performers in Asia last week. Although the Reserve Bank of India’s bond purchases helped mitigate losses, bond yields rose due to increasing risk premiums. The major index in Pakistan had decreased by 9% following an attack in Kashmir on April 22, which led to retaliation from India.
Foreign investors, who enjoyed a streak of gains for 16 days until Friday, could resume their investments thanks to positive economic indicators from India. These include initial trade signals from the US, ample liquidity in the market, and expectations of interest rate cuts.
The Indian rupee appreciated by 0.9% against the offshore dollar. However, Monday will see closures in India’s bond and currency markets due to public holidays. Trading in Indian stocks has been volatile, with options expiring on a Nifty 50 call worth Rs 25,000 on Thursday.
Still, new tensions could arise. India’s position on the Indus Water Treaty could impact a significant portion of Pakistan’s agricultural production. An Indian diplomat allegedly violated the ceasefire just hours after it was announced, though Pakistan has denied these claims.
“Reports of ceasefire violations occurring so soon might cast doubt on its sustainability,” noted strategists at Barclays Bank PLC, including Avanti Save. The bank maintains an overweight stance on Pakistani credit, hoping to see recovery in the Indian rupee.
In Pakistan, there is optimism that economic reforms will regain traction as border conflicts diminish. Provincial banks are seeing renewed interest, with companies revisiting their profit margins in order to secure additional funding from the IMF. Recently, the International Monetary Fund approved a $1 billion emergency spending plan and a $1.4 billion climate resilience initiative.
Pakistani sovereign debt continued its upward trend, outperforming other emerging markets on Monday. National bonds increased by 5 cents per dollar until April 2031, marking the most significant gain since June 2023.
If the ceasefire endures, a future review by MSCI Inc. regarding Pakistan’s index weight could be a catalyst for further investment, especially alongside the impending federal budget announcement.
“As tensions reduce, investor attention is likely to refocus on advancing economic reforms,” remarked Ali Raza, head of international equity trading at BMA Capital Management Ltd.
