stocks was not commonplace in Pakistan, a largely agrarian society,
until the 1980s when a raft of market-oriented economic reforms
brought capital market exposure to the people. Then, throughout the
decades of 1990s, the bourses kept attracting local as well as foreign
investors because of a shift in economic policies in the direction of
the three Ds (deregulation, decentralization and disinvestment).
But even so,
market capitalization did not exceed $5 billion mark. Then came
September 11, 2001, when the al Qaeda attacks World Trade Centre in
the United States which forced Pakistan's government to withdraw its
support for the Taliban regime in neighbouring Afghanistan and join
the subsequent US-led war against terrorism.
economic rewards to Pakistan not only allowed for new macroeconomic
targets but also sent Pakistan's key stock index, the Karachi Stock
Exchange's KSE-100, rocketing. At one point the market capitalization
of more than 701 companies listed on the KSE reached a staggering $17
billion mark (about 26 percent of GDP) as the index kept climbing
through 2002 and in the subsequent years. In 2002, the index rose by
112 percent, in dollar terms out-performing almost every other markets
in the world.
The bulls outrage
continued unabated until now. In the past two years, the market
capitalization has reached at amazing $36 billion, roughly 38 percent
of the national GDP.
prudently decided to side with the US in its war against terrorism in
2001, it thus became qualified for a liberal rescheduling of its
multilateral loans, so averting default on its $38 billion foreign
debt. The US also waived bilateral loans and the European Union
extended additional quotas to Pakistani textile goods, the country's
All this helped
the economy grow by 5.1 percent in the fiscal year that ended on June
30, 2003, another 6.2 percent in the 2004 and now a stellar seven
percent growth is very much visible. That provoked an investor
stampede into the capital market. Stock markets have emerged as the
single most attractive investment opportunity at a time of
historically low interest rates of about 7 percent, as compared to
over 20 percent just two years earlier. Money from overseas Pakistanis
flooded in. Remittances rose by 77 percent to $4.2 billion in the year
ending June 30, 2003, which still flowing in, although with somewhat
slower pace. This all happened following a government's crackdown on
illegal money transfers in an attempt to plug terrorist fundings. A
large proportion of the remittances headed for the stock market as a
stable rupee against the dollar and low interest rates left few other
privatisation plan that calls for partial disinvestment through stock
exchanges also helped. The government plans to earn about $2 billion
by the end of the current fiscal year through privatization of
The results are
phenomenon. The benchmark index of KSE-100 shares now hovering well
over 8000 points and every day the index sees new highs. Analysts are
now considering the 10,000 mark as the new resistance level.
UNDER THE HAMMER
The government is
divesting its shares to general public, broadening the base of
investors as well as the market capitalization. Moreover, the sale of
strategic stakes in Pakistan State Oil, Pakistan Telecommunication,
and banking companies respectively to corporate investors, is also on
the card. Karachi Electric Supply Corporation, the sole electricity
distributor in Karachi has also been sold.
performance of Pakistani stock markets has, however, failed to attract
foreign investors, who had quit the market in the 1990s. At that time,
the highly volatile political climate of the regimes of former prime
ministers Benazir Bhutto and Nawaz Sharif had led to grave corporate
and economic uncertainty.
In the early
1990s, despite the stock markets tiny capitalization, foreign
portfolio investment reached $2 billion. Ironically, now, when
capitalization is in excess of $36 billion, foreign portfolio
investment accounts for a paltry $100 million.
The market is
buzzed with the gossips nowadays of so-called foreign investment,
especially from Middle East but insiders believe that this is the
money of local brokerage houses being routed through Dubai. The past
experience of foreign investors makes them disinclined to invest in
Pakistani stocks, said Mohammad Sohail, director at Jahangir Siddiqui.
"Despite a robust growth in the market capitalization, they have kept
them away so far," he added.
Standard & Poor's
and Moody's Investors Service recently upgraded Pakistan's
sovereign-credit rating to B and B3 respectively but these are still
way below investment grade. "(Another) four-to-five notch upgrading by
the credit-rating agencies is required to convince foreign investors
to come here," said Sohail.