Pakistan's Stock Exchange Needs Life Support

Posted by: Frederik Balfour on October 28, 2008

Here’s a quick quiz: Which Asian stock market has declined the least in the past two months? The answer is the Karachi Stock Exchange , which thanks to a “circuit breaker” that put a price floor on all shares on August 28, the index hasn’t moved since then. Since then, trading has all but halted. On Monday October 27, less than 250,000 shares traded hands.

When I spoke to Karachi Stock Exchange CEO and managing director Adnan Afridi about 10 days ago, the plan was to remove the floor and allow normal trading to resume by now. But the October 27 deadline has passed and things have been pushed back until the end of the month, ostensibly to give the government enough time to tee up a stock market stabilization package. worth about $600 million. That’s right, just $600 million, not billion. That may sound like chump change compared to the mammoth bailouts U.S. and European governments are coughing up, but Afridi says the package should do the trick. About 40% will be used to invest in seven state-owned companies [call it reverse privatization] and 60% will go to financing a put option available to foreign investors who can buy it to minimize further losses when the market goes south.

What I can’t figure out is how they are going to price this put option. Considering the stock market has been in paralysis for two months while other bourses have plunged, the KSE has at least 30% to fall just to catch up with the rest of the pack. The KSE is only down less than 35% so far this year. But the longer the authorities delay the lifting of the price floor, the further things will fall once normal trading does resume. And then there’s an additional downside for the country risk—both because of its highly unstable security situation, and the fact that Pakistan may be just days away from seeking an IMF bailout.

Reader Comments

Interconnect

October 29, 2008 2:26 AM

The scenario is going bad to worse day by day when the day approaching for IMF bailout. Pakistan is very rich in bullion with average household ownership of gold ornament/bullion. Desire for conversion of Rupee to gold. The Commerce Ministry, and the Federal Bureau of Revenue should consider to exempt gold bullion/jewellery import from all import, Federal, local taxes if brought thru the banking channel, and sold thru the banking channel. Profits should also be exempted for transaction from gold. This will help the country's illegitimate gold lying at homes, lockers to the banking channel, hence helping the banks overcome the crisis, and possibly steer its way on the path of self reliance for being a big gold reserves with the banks. The National Commodity Exchange already trade bullion but should increase the scope with PAMP already partner with Dubai, CBOT, London, TOCOM, COMEX, SNB Also couture Jewelry from PAMP can also be traded at the commodity exchanges. eMail: haroon.rashid@akunet.org

Tahir Jamil

January 8, 2009 3:49 AM

Investors are asked not to invest in stock exchange
Sacked investors requested all other national and foreign investors to withdraw their money from Pakistani stock exchanges (Karachi Stock Exchange KSE, Lahore Stock Exchange LSE and ISE) as a protest. Pakistan people party government has not accepted any public demand yet. They should provide some sort of relief to people suffering miseries. Thousands of people including me are looking towards them. Small Pakistani stock exchanges investors asked government to provide them financial assistance. Small investors demanded that those investors who invested in the range of 50,000 to five lakh rupees should be given financial assistance since nothing is left with them. Could you believe that I invested 200,000 rupees in Lahore stock exchanges (LSE) and left with 0.00 balance! Our family is feeling as we are robbed by dacoits. I do not consider it fair business. I wonder whether it is business at all. Large numbers of people advised me not to invest in stock exchange since the stock exchange deprived many families from all of their wealth. Majority of people consider stock exchange business as gamboling and scam

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Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.

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