Wednesday, October 1, 2008, Shawwal 1, 1429    

Investors vying for dollars, gold

Amanullah Khan

Karachi—The persistent unpredictable conditions, at bourses where foreign investors also flying away with their capital, have left a few options for investors either to go for dollar or the gold offering well returns these days.

Gold moved up at Rs 21,642 per 10 grams in the local market while rupee was also looks to touch the level of Rs80 going forward if the exchange rate was not managed effectively and the government did not take serious steps for improving goods and services situation to give stability to the sinking rupee, it may be mentioned that international gold price also surged to $ 879 an ounce.

The endless increase in gold prices have a positive social impact in Pakistan where the women folk usually prefer to buy artificial jewellery instead of inviting trouble by wearing gold jewellery which is an open invitation to a hold up which is common scene on Karachi streets.

In fact, the situation has taken a u turn at the stock exchanges in Pakistan as the investors are being advised to keep off the stock business; it is too dangerous especially for the small investors. Even some big fishes and big names were trapped in the current swings which proved fatal at Karachi Stock Exchange.

The foreign investors are pulling out their money from the stock market due to fast depletion of foreign exchange reserves and falling rupee. British investors pulled out $ 20.313 million from equity market followed by Australia $ 5.846 million while investors from Luxembourg pumped in $ 17.046 million. On September 25, 2008, the market witnessed a net out flow of $ 1.343 million with inflows at $ 0.648 million and outflow of $ 1.991 million.

The economic and financial turmoil driven primarily by oil price phenomenon had a telling effect on Pakistan’s capital market, once the fastest growing and active market in Asia, is being dragged by the regulators for survival.

During the month of September which is about to conclude, the foreign investors pulled out $ 9.607 million from stock market. This withdrawal by the foreign investors in fact added fuel to the fire especially towards weakening of the resolve and confidence of the local investors.

Actually the policy makers and the regulators of the stock markets were equally responsible for contributing devastating effects on otherwise a sound and growing concern by their ambitious policies of documentation and taxation which also shattered the confidence of the investors who have the peculiar third world mentality and do not feel comfortable with the documentation process which ultimately goes to support them at the end of the day. Yet they need some awareness and education regarding benefits of documentation instead of compelling them under tax blanket.

The investors in Pakistan need some soft and flexible attitude on the part of regulators and revenue authorities. One may recall early days of Japan, China, Thailand and even in the west where the economy was allowed to grow on sound footings before bringing them to the documentation process. Some ill-timed steps initiated at the stock markets weaken the resolve of the investors and their confidence into regulations and the policies.