Pakistan’s stock market has emerged as one of the best performers in Asia this year, as improving macroeconomic conditions and a loan deal with the International Monetary Fund (IMF) boosted investor confidence, Bloomberg reported.

The KSE-100 Index, which tracks the performance of the 100 largest companies listed on the Pakistan Stock Exchange, has surged more than 60% in 2023, making it the best performer among the Asian frontier markets, which include Bangladesh, Laos, Sri Lanka, and Vietnam.

The IMF approved a $3 billion loan package under the Standby Agreement (SBA) for Pakistan in July 2023, after the country agreed to implement reforms to address its fiscal and balance-of-payments crises. The loan has helped Pakistan secure additional financing from other lenders, such as the World Bank and the Asian Development Bank, and ease its external debt burden.

The IMF deal has also improved the macroeconomic outlook for Pakistan, as the government has taken measures to curb inflation, reduce fiscal deficit, and increase tax revenue. The central bank has also maintained the interest rate at 22% to support the currency and contain inflationary pressures.

The improved economic conditions have translated into higher corporate earnings, especially for the banking, cement, and energy sectors, which have benefited from higher interest rates, infrastructure spending, and lower oil prices, respectively.

Analysts expect the positive momentum to continue in 2024, as Pakistan’s economy recovers from the impact of the Covid-19 pandemic and the government implements further reforms to enhance growth and competitiveness.

Pakistan is not the only frontier market in Asia that has delivered impressive returns this year. Laos and Sri Lanka have also seen their equity benchmarks rise by 28% and 27%, respectively, as they have eased monetary policy and attracted foreign inflows.

Bangladesh and Vietnam, which are among the fastest-growing economies in the region, are also poised for a rally in 2024, as they benefit from their strong domestic demand, export-oriented industries, and favorable demographics.

Frontier markets are emerging markets that are less developed and less liquid than the mainstream emerging markets, such as China, India, and Brazil. They offer higher potential returns, but also higher risks, due to their political instability, regulatory uncertainty, and currency volatility.

According to Asia Frontier Capital, a fund manager that specialises in frontier markets, these markets have a low correlation with the global markets and provide diversification benefits for investors. The firm also expects the frontier markets to outperform the emerging markets in the long term, as they catch up with their peers in terms of economic development and market maturity.