Why Pakistan's Stock Investors Focus on Business Over Politics
November 14, 2007
Are investors in Pakistan's stock market missing something?
Ten days after Pakistan's president, Gen. Pervez Musharraf, sacked the country's chief justice, hijacked the judiciary with friendly parties and imposed a state of emergency, the country's political situation looks uncertain. Yet the benchmark Karachi-100 index has declined by a meager 2%.
The economy has been performing well. Dictatorial tendencies aside, Gen. Musharraf was good for business. He has presided over five years of 7% average annual growth in gross domestic product, a far better record than his predecessor. The stock market responded this year with a 50% increase.
On the whole, Pakistan looked like a stable reforming economy that was moving slowly toward civilian rule. Now, it looks more like a nuclear-armed ally of the West threatening to descend into chaos. Gen. Musharraf's hold on power looks increasingly fragile -- opposition leader Benazir Bhutto has called for his resignation -- but it's not obvious who might succeed him and there are many conflicting interests to balance.
That level of political uncertainty is usually bad for stock markets. The brief fear that a warehouse fire in London was a terrorist attack was enough to push the U.K. FTSE 100 index down by half a percent on Monday. Maybe Pakistani investors see the local situation more clearly.
Indeed, Pakistan's economy seems to be largely insulated from political strife. Investment in the country continues, despite it appearing to be on the brink of chaos. The government of Abu Dhabi announced yesterday plans to build a $5 billion refinery in Pakistan -- the largest single foreign direct investment ever made in the country.
Investors say they believe that whatever happens next, the country will muddle forward in its successful pro-business ways. Even the socialist Ms. Bhutto isn't seen as a significant threat to the country's economic prospects. Investors are betting no one will be so foolish as to destroy the nation's thriving economy.
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