Karachi Stock Exchange observes one of its historic years

Jan 06 - 12, 2003

Stock market is considered a leading indicator of an economy. The up and down swings in listed securities depict general investment sentiment and help economy to mobilize more investments. Deregulation and privatization in early 90s boosted the business activity at local bourses but a depression in later half took its tool on markets. A boom witnessed in middle of the decade fizzled out soon due to inconsistent economic policies and deteriorating Law & Order situation. Couple of good rallies were seen during this period but washed out, as economic downturn remained intact. A protracted bull run has been registered in the year 2002. Many question the basis and sustenance of inflated values but sentiment has remained firm till the end of year.

It may sound like a dream come true but history is rewritten at domestic capital markets when Karachi Stock Exchange observes one of its historic years. The 100-share benchmark beats its lifetime high level at the twilight of year 2002. Karachi Stock Exchange stands out as the world's best performing exchange for the outgoing year. KSE100 index finishes at 2701.41 against 1273.06 of last year and recording a gain of 1428.35 points. This can also be translated in to a rise of 112 percent. Overall market capitalization rose to Rs. 599.93 billion from last years Rs. 297.42 billion again a rise of 102 percent. Market not only breached the all time high of 2661, seen on market 21 1994, but also beat the 536 million share trade volume recorded on May 2000. A single session on December 31, 2002 registered 689.15 million shares changing hands. Pakistani stock markets are 'Emerging Markets' which offer great investment opportunities. Volatility and brisk movement remaining the key features, a positive shift in economy's fundamentals helped them sustain such abnormal gains throughout the year. Low interest rates, strong local currency and lack of alternate investment opportunity kept them on steep rising path.

It has never been a smooth sailing. Markets managed to endure all the hardships that came its way. World had seen how damaging the 9/11 incidence had been for the financial world. A yearlong stand off between two nuclear rivals also had a dampening effect on the business sentiment. Investors' morale was at lowest ebb at early stages but confidence level started to improve with promising developments on economic front. A noticeable appreciation was registered in foreign remittances along with liquid foreign exchange reserves of Pakistan. Liquidity generated after the September 11 attacks has played a pivot role in the sustenance of gains. The situation seems dubious to some but this rally is backed by a healthy positive trend in macro economic indicators. Pakistan's liquid foreign exchange reserves stand above US$ 9 billion mark, which is an all time record and government hopes to achieve US$ 10 billion target by June 2003. Remittances by expatriates rose to $1.784 billion in the first five months of fiscal 2002/03 (July/June) from $789 million in the same period a year earlier. Moreover, Pakistan is on target to secure US$1 billion in foreign investment and that may be facilitated by better credit rating.

A successful completion of IMF's Stand-By Arrangement (SBA) in October 2001 paved the way for qualification of Poverty Reduction and Growth Facility (PRGF) programme that helped to fetch a 3-year $1.3 billion from IMF besides restructuring of $12.5 billion bilateral debt under the Paris Club on concessional terms. Strict adherence to economic structural reforms was appreciated at many forums and triggered flow of funds for the poverty alleviation and development of infrastructure. Confidence of the investors improved further after two international rating agencies upgraded the country's rating. Moody's Investors Service along with Standard & Poor's raised the long-term sovereign credit rating. The long-term rating was raised to 'B' from 'B-', while the long-term local currency sovereign credit rating was raised to 'BB-' from 'B+'. The formation of civilian government and assurance from them that the policies of retiring government would be continued was a shot in the arm. Appointment of Mr. Shaukat Aziz as adviser to prime minister on finance and economic affairs assured the donors that the economic reforms will continue and governance, risk management and transparency would prove to be true economic agent and an engine of growth.

US Dollar remained on a losing streak against all major currencies during the year. Pak. Rupee also showed improvement against the greenback and registered healthy scores. This helped State Bank of Pakistan (SBP) ease its discount rate to 7.5 percent from 10 percent in January. The central bank followed the easy monetary policy and provided a stimulus to economy for a better growth. Pakistan is expected to achieve a Gross Domestic Product (GDP) growth target of 4.5 percent in fiscal year 2002-03, better than 3.6 percent of last year. Moreover, rationalization of returns on National Saving Schemes, a less risky investment, has opened the gates of liquidity into the capital markets. Cut in the discount rate has also resulted in a drop in Yields of Pakistan Investment Bonds. This generates an automatic interest among commercial banks and other funds for the equity market. This should help shift their focus to stock market because fixed-income instruments are no longer attractive for them. High dividend yield stocks like The Hub Power Company, Pakistan Telecommunication Company Limited, Fauji Fertilizer Company including other remained in high demand as they offer better returns than various fixed income securities. Many underdogs also caught the limelight and contributed building sound base for the rally.

Full marks goes to market watchdogs Securities & Exchange Commission of Pakistan (SECP). The hard work done in last couple of years started paying dividends and enhanced market depth. Capital markets are more stable, transparent in operations and offer broad based investment opportunities. Various core reforms have been inculcated and a number of structural modifications are underway including initiatives for demutualization of stock markets. New trading system for handling significantly larger volume, necessary changes in the regulations governing futures contracts, introduction of OTC regulations to provide for a transparent mode of investment, listing of smaller capital base companies, review of existing KSE-100 index, and introduction of a new futures index and launch of margin financing include these reforms.

Are these gains sustainable? Answer to this question lies in the fact that economy performs well in days to come. This is high time to boost investment climate in Pakistan. Steps should be taken for consistency in economic policies and scope of structural reforms should be expanded across the board. Timely privatization of national entities may help boost foreign direct investment many folds and also diminish burden of external debt.

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World Markets in 2002

% Change

Pakistan (KSE100)


Sri Lanka (All Share)


Czech Rep (PX 50)


Thailand (SET)


Finland (HEX)


Netherlands (AEX)


Sweden (OMX Index)


Germany (Xetra DAX)




Asian Markets in 2002

% Change

Pakistan (KSE100)


Sri Lanka (All Share)


Thailand (SET)


India (Sensex)


Singapore (Straits Times)


Hong Kong (Hang Seng)


Japan (Nikkei 225)


China (Shanghai B)