Investment Strategies for Pakistani Investors: Gold, Stocks, or…

The financial markets in Pakistan, especially the PSX, have shown remarkable growth. Experts advocate for a balanced investment strategy including stocks, gold, and cryptocurrencies. Young investors are encouraged to prioritize stocks, while gold serves as a stabilizing asset. Regulatory developments in cryptocurrency are also noted. Financial literacy is crucial for increasing stock market participation.

In recent months, the financial markets in Pakistan have experienced significant growth, particularly the Pakistan Stock Exchange (PSX), which saw its KSE-100 index rise by 84 percent in 2024, culminating at 115,127 points. Following this surge, the index has further climbed by 2.3 percent, reaching 117,806.75. Concurrently, the price of gold has rocketed, closing 2024 at Rs272,600, a leap of Rs52,600, and further escalating to Rs325,000, representing a substantial 19.2 percent increase.

Amid this landscape, the formation of the Pakistan Crypto Council indicates a burgeoning interest in cryptocurrencies within the country, a development that experts have largely welcomed. As market dynamics evolve, potential investors are prompted to reconsider how best to diversify their investment portfolios among gold, stocks, and cryptocurrencies according to their risk tolerance and investment goals.

Mustafa Fahim, an investment banker based in the Middle East, emphasizes the importance of balance within an investment portfolio, suggesting that all three asset types—gold, stocks, and cryptocurrencies—should be included. He further advises that younger investors, being more tolerant of volatility, should consider allocating approximately 10 percent to cryptocurrencies. Nevertheless, Fahim advocates for a larger proportion, roughly 60-70 percent, to be directed toward stocks, particularly index funds, which historically yield an annualized average return of around 20 percent.

Adding to this perspective, Shankar Talreja, the director of research at Topline Securities, posits that the potential for Pakistani equities remains robust for the upcoming 12 months. He states, “Currently our market is valued at 5.5x of the earnings multiple… This provides upside of 27 percent, and with the dividend yield of 10 percent, the total return can be around 35-40 percent.”

Regarding gold, Talreja expresses caution, noting that its current price of over $3000 per ounce, coupled with the appreciation in international markets and currency fluctuations, suggests that gold’s return will likely diminish in the coming year compared to previous performance. He adds that gold is often seen as a safe haven during times of economic instability.

Muhammad Usman Siddiqui, a research analyst focused on MENA equities, concurs that gold acts as a stable asset in volatile times, especially with current geopolitical uncertainties. He recommends a shift in investment strategy, suggesting an allocation of 50 percent to gold, 40 percent to equities, and a minimal portion in cryptocurrencies for exposure, highlighting that traditional stocks are currently more affordable in Pakistan.

As pointed out by an anonymous small investor from Karachi, investing in gold often requires substantial capital, whereas stock trading can commence from a lesser amount. This investor’s viewpoint underscores that crypto investments generally remain uncertain without clear regulatory frameworks, and the accessibility of stock investments promotes greater participation.

Fahim regards gold as an essential stabilizing asset within an investment portfolio, yet he asserts that its historical returns do not match the potential gains from stocks or cryptocurrencies. He advocates for prioritizing stocks for long-term growth, followed by gold for stability, and a minimalistic approach to crypto investments. Additionally, he identifies Bitcoin as the preferable cryptocurrency, asserting its enduring relevance.

Talreja also expresses reservations about cryptocurrencies, citing their inherent volatility as a significant risk factor. Despite the influence of unofficial reports suggesting a high number of cryptocurrency users in Pakistan, he challenges this figure, indicating it reflects transaction purposes rather than genuine investment interest.

Financial experts underscore a need for improved financial literacy in Pakistan to encourage stock market participation. The prevailing perception that gold and real estate are the sole investment avenues needs to be reshaped through education, potentially leading to an increase in stock market engagement. Furthermore, while regulation of cryptocurrencies may attract more investment, it could introduce taxation that alters sentiment.

In conclusion, Fahim advocates for stock investments, especially for younger individuals close to retirement. He highlights the importance of individual financial circumstances, risk profiles, and investment timelines as critical determinants in final investment decisions, reiterating that an educated and balanced investment approach is paramount in navigating the diverse asset landscape.

In summary, Pakistani investors are currently presented with several investment avenues, including stocks, gold, and cryptocurrencies. Experts recommend a balanced approach that prioritizes stocks for long-term growth while incorporating gold as a stabilizing asset. As the market landscape shifts, investment strategies should reflect individual risk tolerance and time horizons to achieve optimal diversification. Enhanced financial literacy and regulatory clarity surrounding cryptocurrencies may further influence investment choices moving forward.

Original Source: www.thenews.com.pk