Pakistan's stock market roaring

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Pakistan's stock market roaring
April 8, 2008 - 6:45PM
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Asia's only rising stock market claims several reasons for its bullish streak, including recent political stability.

The Karachi Stock Exchange also shines on strong fundamentals and technical reasons, analysts say.

Looking at a turbulent 2007, a quick examination of the first three months of 2008 Pakistan's benchmark KSE-100 Index appears as a car without breaks.

Already the KSE-100 has closed at records highs several times this year, the latest at a record 15,472 on April 4.

"Don't worry the market will easily touch the 16,000 mark by the end of this month, or within 30 days," says Ateeq Ahmad, a senior analyst for technical trends at Capital One Equities.

Analysts are unanimous in seeing political stability and prospects of overall improvement in law and order in the country as two chief driving factors for the index.

To them the recent formation of coalition governments at both federal and provincial levels following the February 18 general elections, hailed as free and fair, signals future political stability in the country. It also triggers hopes for a domestic solution to quell Islamic insurgency in the restive northern province and the spate of suicide bombings all over Pakistan.

But this positive picture emerges out of gloom. Last December 31 the Karachi Stock Exchange witnessed its largest single drop in the KSE-100 index of 696 points. That was its first day open after the December 27 assassination of former prime minister and a charismatic pro-western political leader, Benazir Bhutto, who was chairperson of now ruling Pakistan Peoples Party (PPP).

Throughout January and early February the market behaved skittishly and fell from nearly 15,000 points before the assassination to below 13,600.

"The fear of a massive outflow of foreign investment at the country's equity market (after Bhutto's assassination) sidelined the market participants amid a decline in the international markets of global depository receipts," said Hasnain Asghar at Aziz Fidahusein brokerage house.

But since the February 18 general elections, the market has overcome all its lost traction and seems set to reach new dizzying heights. The market's current capitalisation stands above $US75 billion ($A81.1 billion) or around $US10 billion ($A10.81 billion) higher than July 2007.

The record closings have ridden the news of a coalition alliance between PPP and local Muttehedda Qaumi Movement in southern Sindh province, where Pakistan's largest industrial city Karachi is the provincial capital.

Since forming a federal government, the PPP led by Bhutto's widower Asif Zardari, is streaking a patchwork of countrywide coalition alliances, representing almost all minor and major parties of all ideologies.

Though some political pundits have doubts over seeing the new long list of convenient friends of the PPP, the market analysts are optimistic. "I think the coalitions are durable and long term," said Ateeq Ahmad.

Ahmad also said continued strong buying by institutional investors showed the market is fundamentally strong.

"Institutional investors keep providing huge liquidity in the market," he said.

The market has already absorbed anticipated news of higher inflation and a slight increase in trade deficit due to rising oil prices during the first quarter, said Farhan Rizvi, deputy head of research at JS Global Capital.

He called the recent promise by China to help Pakistan with 500 million ($A540.6 million) to support its balance of payments - due to record high international oil prices - as a big positive indicator.

"In hindsight, a low level of contribution by foreign investors is also a sign of strength for the market as it is immune from the current global slump," Rizvi said, noting the market is purely supported by domestic investors, particularly by local institutional investors.

He said foreign investors would soon enter after seeing a continued domestic buying spree. The current share of international foreign investors in the KSE is comparatively small at between six and seven per cent.

The expected news that Pakistan would soon be rejoining the Commonwealth club will also encourage foreign investors, Rizvi said

Pakistan's membership in the Commonwealth, an alliance of former British colonies, was suspended when then-military dictator and now civilian President Pervez Musharraf imposed emergency rule last year.

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Can anyone with knowledge of economics explain how our stock market is doing so well when the rest of the economy is in so much trouble?

I know political stability and law and order etc are important for the market to do well, but connection does the stock market have to the overall economy? Does the rising number (15000 something right now) represent the number of shares traded? If the number is going higher, does that mean more companies are being listed on the stock exchange? what is the criteria to be listed at KSE?