Pakistani banks dominated the list of the best-performing bank stocks in the Asia-Pacific region in the last quarter of 2023, as the Pakistan Stock Exchange (PSX) soared to new heights amid improved economic outlook and investor confidence.

According to data from S&P Global Market Intelligence, 11 Pakistani banks were among the top 15 bank stocks in the region by total returns in the fourth quarter of 2023. Bank AL Habib Ltd. led the pack with a staggering 89.96% return, followed by Askari Bank Ltd. with 59.48%, Habib Metropolitan Bank Ltd. with 51.56%, and Faysal Bank Ltd. with 48.85%. The only non-Pakistani bank in the top five was Indonesia’s PT Bank Jago Tbk, which posted a 43.56% return.

The stellar performance of Pakistani banks was driven by a strong rally in the PSX, which was one of the best-performing stock markets in the region in the same period. The PSX’s benchmark index, the KSE 100, surged more than 35% in the fourth quarter to close at 62,451.04, a record high.

The PSX’s rally was fueled by a number of positive developments, including the International Monetary Fund’s (IMF) staff-level agreement with Pakistan in November 2023 on the first review of a $3 billion stand-by arrangement, which unlocked about $700 million in funding for the country.

The IMF’s endorsement of Pakistan’s economic reform initiatives, which aimed to reduce fiscal and external imbalances, boost growth, and strengthen social protection, also boosted investor sentiment.

Pakistan’s economy showed signs of recovery, as its gross domestic product (GDP) grew 2.13% in the July-September 2023 quarter, reversing a 2.7% contraction in the previous quarter, according to estimates by the Pakistan Bureau of Statistics. The IMF projected that Pakistan’s GDP would grow 2.5% in 2024, after an expected 0.5% contraction in 2023.

“We expect the rally in Pakistan stocks to continue due to expected monetary easing, stable currency and improved governance post-elections given the fact that the market is still trading at a low price to earnings,” said Awais Ashraf, director at Akseer Research, a financial research firm. He added that the key stock price valuation ratio was near 3.1 times, which indicated that the market was undervalued.

Ashraf also said that the “big weights” listed on PSX, such as energy firms involved in exploration and production and banks, would benefit the most from the IMF’s restrictions on the government’s spending and borrowing, which would improve fiscal discipline and reduce inflationary pressures.

Other Pakistani banks that made it to the top 15 ranking were Meezan Bank Ltd., MCB Bank Ltd., National Bank of Pakistan, United Bank Ltd., Standard Chartered Bank (Pakistan) Ltd., Bank Alfalah Ltd., and Habib Bank Ltd. Two Indian banks, The Karur Vysya Bank Ltd. and CSB Bank Ltd., also featured on the list.

On the other hand, Chinese banks suffered the most in the fourth quarter, as eight of them were among the 15 worst-performing bank stocks in the region by total returns. Shengjing Bank Co. Ltd. saw its stock plummet by 85.66%, the biggest decline, followed by Jilin Jiutai Rural Commercial Bank Corporation Ltd. with a 51.83% drop and Bank of Gansu Co. Ltd. with a 39.66% fall.

The poor performance of Chinese banks was in line with the weak performance of the local stock markets, which were weighed down by concerns over slowing economic growth, trade tensions, and regulatory tightening. The Shanghai stock exchange’s SSE Composite Index, for example, dropped more than 4% in the fourth quarter.

Other banks that made it to the bottom 15 ranking were from India, Australia, Vietnam, New Zealand, Japan, and Indonesia.

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