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  5. PAKISTAN AND OTHER STOCK MARKETS IN 2001.                                    

Equities expected to show above average growth in 2002

By Mohammed Sohail*
Jan 14 - 20, 2002

After outperforming all leading emerging markets (except for China) in 2000, Pakistani stocks failed to impress during the calendar year 2001. In a sample of 16 developed and emerging markets, Pakistan ranked 11th.

In emerging market also, Pakistan equities were amongst the laggards as it eroded by around 20% in dollar terms during the year. Had there been no appreciation of Pak Rupee in the last quarter of 2001, the slide could have been much higher. Last year's (2000) excellent performance of Pakistani market was mainly on account of there being no tech stocks in Pakistani market.

In order to compare apples with apples, the dollar returns of all major indices have been taken into account. Index movements in local currency terms provide an incomplete and incomparable picture of different markets of the world. In case of Pakistan, KSE Index eroded by 16% in local currency terms whereas after adjusting for 4% Rupee devaluation actual decline in dollar terms was around 20% in the outgoing year.

In Pakistan, 2001 has been quite a dull year in terms of actual stock market activity. The virtual removal of a leading investment bank from the stock market scene has only served to further reduce the minuscule institutional presence in the market. However, it would not be significantly off target if one can call 2001 the year of events as a lot has taken place during the year. From the globe impacting September 11 US attacks to the mounting tension between the nuclear neighbors of South Asia, we've seen it all this year. Market even witnessed a brief clash between the Securities and Exchange Commission of Pakistan (SECP) and the Karachi Stock Exchange (KSE) governing body over appointments to key posts of the KSE.

Whereas foreign selling, including the liquidation of the only Pakistan dedicated fund, the Pakistan Investment Fund, plunged the index and caused panic among some players, Musharraf's so called historic visit to India failed to create a stir as market expectations were not met.

Closure of the market soon after September 11 averted a further crash and the subsequent rally, after the market float was absorbed by big commercial banks, resulted in the index regaining some of its lost ground from the lowest level of 1075 on October 02, 2001. The KSE Index gained more than 300 points in just one month (October) to reverse a nine-month negative trend as investors realized Pakistan's monetary benefits from favoring the US coalition.

As evident from the table, most of the other sample markets (both emerging and developed) have been in the red this year also. This was largely expected, as the stock market decline was already there since the tech bubble burst in 2000. US-led economic slowdown coupled with September 11 events further effected the investors' perception of any recovery.

In developed countries, US technology stocks have been amongst the worst hit (NASDAQ down approx. 20% for the year) as most of the start-up dot com's have closed down. However, the old economy stocks have recovered well after a massive decline incurred post September 11 with the Dow Jones down only 6% for the year. Japan's economic woes have continued with the Nikkei being the worst performer with a massive 36% decline in dollar terms with no recovery in sight.

In emerging economies, South Korea's excellent performance was also on account of low base as it was the amongst the worst performing market in 2000. China, which was the best performing market last year (2000) was down 17% in 2001.

After two consecutive bad years, outlook for the global equity markets is positive. Continuous interest rate cuts by US, with other countries following suit, is expected to provide the much-needed stimulus to stock markets around the world in 2002.

Regarding Pakistan's stock markets things are moving in the positive direction. Once the normal tension between Pakistan and India is over, the local bourses is all set to post decent gains in coming months. With mounting forex reserves amid rising remittances through official channels and financial support provided to Pakistan, outlook of stock market looks promising for the current year. In the absence of limited investment options in an environment of declining interest rates and weak dollar, investors will shift their focus to high-yielding listed companies. Assuming no political crisis, Pakistan equities are expected show above average growth in 2002.

global markets in 2001


$ change 2000

$ change 2001

Emerging Stock Markets

South Korea Seoul Comp



Thailand SET



Taiwan TAIEX



Malaysia 100-Stock



Indonesia Jakarta Composite



China Shanghai Composite



Pakistan KSE-100



India Sensex



Brazil Bovespa



Developed Stock Markets

German Dax



Australia All Ordinaries



US Dow Jones






US Nasdaq



Singapore Strait Times



Japan Nikkie



The writer is Head of Research at 'Invest Capital and Securities' and is also a visiting faculty of 'IBA Karachi'.