Economy
 
Pakistan’s equity markets show sign of recovery
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March 16, 2012
Finally signs of life have been witnessed in Pakistan’s bourses which remained lifeless for last many years in the wake of March 2005 crash which deeply hurt the faith of investors, especially small investors.

The Karachi Stock Exchange KSE staged encouraging performance after Federal Finance Minister, Dr. Abdul HafeezShaikh announced to keep current rate of Capital Gain Tax till June 2014 and removal of withholding tax on brokers’ commission. Resultantly Karachi equity market touched 6 years high in term of volume and moved back in the top 5 slot among the bourses.

In 2005, the KSE witnessed worst-ever crash in the country history and caused loss of $13 billion in market capitalization, the majority of victims were the small investors who had lost billions of rupees. Chief beneficiaries were some big players who profited. The crash led to the riots. The general perception was that the crisis was engineered by some of the big players.

The inaction of the local and foreign investors coupled with the law and order situation has discouraged investment in stock markets as well as in other sectors. The prolong energy crisis also played vital role in slowing down national economy. The war against terror remained hopelessly counterproductive as the country lost over $70 billion and received only hollow promises from allies. Recent growing incidents of kidnapping for ransom has also deteriorated the situation. Despite such horrific incidents the response of government and concerned department was nothing more than lip service.

Though the signs of life are visible and potential do exists the steps are needed to pave the way for fresh investment in all sectors of economy. Previous week the KSE touched 13,300 level and intra-day volumes shot to 553 million shares. “However, index heavyweights remained silent where most of the activity was seen in low tier scrips as average traded value of the market declined by 11.3 percent. The ongoing rally in the market was further supported by S&P stance for maintaining the current rating of Pakistan to B-/Stable, though it stood cautious over the on-going political rift in the country. Meanwhile, Government re-initiating the privatization program to fetch Rs 30 to 35 billion was duly welcomed”, says report by Invest Capital Markets.

Cement sector also showed some activity as dispatches increased during first eight months of current fiscal year due to export prices to Afghanistan and prospects of cement exports to Saudi Arabia kept the cement scrips in limelight. In addition to that, bumper wheat production during current season and expectations of 4 percent GDP growth this year by Finance Ministry also kept the market upbeat. Auto sector performance by the end of the week also provided some support. Auto sales in last 8 months of FY12 improved by 16 percent, the report added.

KSE outshined global average, back in the top-5 equity-market slot.

Interestingly, with persistently climbing index, Pakistan equities regained their lost identity amongst the regional outperforming equities in February 2012. In global perspective, after lagging for the last few months, Pakistan’s equities stood above global average returns in February 2011 where regional as well as world equities also rallied on subsiding debt default fears previously furthered in the US and Euro zone economies. Not only did KSE-100 index outperformed its benchmark MSCI Frontier Market index by 2 percent but also the Emerging Markets by 6 percent as well as MSCI World index by 5 percent in February 2012.

Pakistan’s equities have now been gaining traction in the Asia Pacific region after marked improvement in liquidity and volumes which can be instrumental in attracting foreign investment in equities. The country desperately needs foreign exchange to consolidate its reserves position part of which could be achieved through stock markets by offering conducive environment.

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