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KSE, a car without breaks
stopped by violence
C’ wealth membership and sale of banks vital to lure foreign capital
SHR Jahfery
Islamabad—Karachi Stock Exchange, Asia’s only rising market that
proved immune to global slump was flourishing on several factors but
yesterday’s political violence has put brakes to it. Deteriorating
security situation has heightened the investors’ concerns that need
to be tackled, as the foreign capital sitting on the sidelines will
not be tempted enough to step into Pakistan.
There were several reasons for the bullish trend with political
stability on the top but the riots are the only reason for its dive.
Strong fundamentals and technical reasons that were supporting
market seem to be evaporating. KSE-100 had closed at records highs
several times this year and forecasts said that it would easily
touch the 16,000 mark by the end of April. Analysts were unanimous
in seeing political stability and prospects of overall improvement
in law and order situation as two chief driving factors for the
index but now they opine otherwise.
The recent formation of coalition governments at federal and
provincial levels following the February 18 general elections
signaled future political stability but now situation is changing
dramatically. In this scenario, the Government should take immediate
steps, as some stakeholders fear a massive outflow of foreign
investment from the equity market. “The move of the Government for
countrywide coalition alliances has raised hopes but it will hurt
stocks and businesses if not materialized as desired,” said Dr.
Murtaza Mughal, president of Pakistan Economy Watch (PEW).
“Government should ensure that coalitions are durable and long
term,” he added. The market has already absorbed news of higher
inflation and an increase in trade deficit due to rising oil prices
but it may not be able to stand this type of political violence. Dr.
Murtaza called upon friendly countries to help Pakistan support its
balance of payments. He also demanded the Government to rejoin
Commonwealth to encourage foreign investors.
The market’s performance has not been enough to tempt people to
invest further. “We are not ready yet to put in a lot more,” an
official of Progressive Asset Management, a London-based emerging
markets fund that has invested $3.2 million in Pakistan, was
recently quoted as saying in a WSJ report. Pakistan Economy Watch
point to areas where the Government needs to prove itself before the
foreign capital comes back, the stalled process of privatizing the
banking sector while other is situation at Karachi, business hub of
the country.
The sale of shares in United Bank in 2002 proved the trigger for
five years of strong capital inflows. However, the last eight months
have seen little activity in a sector heavily favored by foreign
investors who keen on trying to tap country’s growing consumer base.
Meanwhile, PEW has expressed astonishment over statement of a farm
official in which has said that country will be short of 2 million
tones of wheat this year on fertilizer costs and other reasons. The
statement that Pakistan will harvest 22 million metric tons, less
than the 24 million tons estimated in October has raised prices in
Chicago Board of Trade, which will affect whole population of the
globe that uses wheat as staple.
Pakistan is the third largest produced of wheat in the Asia and any
such statement is taken seriously. Now whole world will wait for
import tenders from TCP and opportunists will try to make new
fortunes, PEW said. The loans taken by Government from State Bank of
Pakistan have increased by 12 percent and reached to the level of
409.34 billion from July 2007 to March 2008. The total Government
loans have crossed 754 billion. This serious gap must be bridged on
war footing.
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