During the peak of the ‘dot com bubble,’ Masayoshi Son, the founder of SoftBank, suffered a staggering $70 billion loss in just one year. This remains one of the largest personal wealth declines in history. At the same time, the NASDAQ lost nearly 80% of its value, erasing trillions in market capitalization. The period was marked by extreme volatility, where massive market gains driven by optimism were quickly followed by sharp sell-offs due to unrealistic valuations. The term “Dead cat bounce” became widely used during this time, referring to short-lived rallies amid prolonged declines.
KSE100 Volatility
Currently, the volatility of Pakistan’s KSE100 index is averaging 32%. While market fluctuations are common, they do not always lead to a crash. Unlike the extreme optimism that fueled past bubbles, the market in Pakistan is suffering from pessimism, resulting in lower valuations. However, with ample liquidity and stable financial conditions, the KSE100 index is expected to continue its upward momentum. Analysts had predicted a dip post-Monetary Policy Statement (MPS), due to profit-taking and year-end reallocation. The downward trend is expected to be short-lived, with a resumption of growth at the start of the new year.
Rupee Under Pressure
The Pakistani Rupee came under pressure last week as significant outflows drained market liquidity. Analysts point to heavy debt servicing payments and year-end strategic outflows as key reasons for this strain. Despite these outflows, the country’s reserves grew by $32 million, thanks to the State Bank of Pakistan (SBP) conducting buy-sell swaps to fund payments. The collapse of swap premiums is a temporary situation, and analysts expect a recovery starting in early January as swap pressures ease and foreign exchange loans mature.
Remittances to Strengthen the Rupee
One of the key factors supporting the rupee’s stability is a predicted rise in remittances. The introduction of the new non-filer tax law and a continued decrease in import demand is expected to boost remittance inflows by an additional $250 million per month. This could push total remittances to $38 billion in 2025, representing a $3 billion increase from current levels. The continued growth in remittances is expected to bolster the rupee’s stability, even though the Real Effective Exchange Rate (REER) stands higher at 102.92.
Dollar Strength at a 2-Year High
The US dollar has strengthened significantly, with the Dollar Index reaching 108.45, the highest point in two years. This surge was spurred by the Federal Reserve’s hawkish rate cut. The Federal Open Market Committee (FOMC) members predict only two 25-basis-point cuts in 2025, a stance that has been priced into the market. Analysts believe this policy could be influenced by anticipated Trump 2.0 policies on tariffs, taxes, and migration. The dollar’s strength has pushed major currencies like the Euro, Japanese Yen, and British Pound to multi-month lows.
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Gold Prices Dip as Yields Rise
Gold also felt the effects of the dollar’s strength, with prices closing below $2,600. Analysts predict that gold prices could decline further as the 10-year US Treasury yields approach 4.50%. The rise in yields and the strengthening of the dollar have created a challenging environment for precious metals.
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