Karachi Stock Exchange capital surges by US $1.2 billion in five days

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KARACHI, Pakistan -- A perfect storm of financial events has pushed the capital of Karachi Stock Exchange (KSE) up by US $1.2 billion in five trading days in 2010.

On December 31, the capital of the KSE was US $32.2 billion; it surged to US $33.4 billion in five trading sessions in January.

The KSE-100 benchmark rose to 9,771 points by January 12, from 9,386 points on December 31. The stock market’s first trading day of 2010 was January 4. The market was closed January 1 to support a nationwide strike after the December 28 bombing and torching of markets in Karachi.

“After 18 months, the KSE index has again reached very close to 10,000 points in the wake of different positive economic developments”, Ahmed Nabil, COO of the Javed Omer Vohra Company (JOVC) told Central Asia Online.

“The index can hit 10,000 points any day in January, as the sentiment of the market is bullish and the investors, especially foreigners, buy lucrative shares with the optimism of earning a good profit”, Nabil said.

Oil prices, an infusion of money from the International Monetary Fund (IMF) and increased interest by foreign investors are pushing the jump in capital. Nabil said that despite frequent bombings in Pakistan, foreigners have invested US $280 m in the past few months.

The aggressive buying by foreigners indicates a positive outlook for growth and motivates local institutions and investors to actively trade, Nabil added.

Earlier this month, the IMF released US $1.3 billion of an overall US $11 billion bail-out package for Pakistan that has paved way for the rapid growth in the market, he said.

International crude oil prices have increased to more than US $80 a barrel and this has not only stabilized world stock markets, but has also encouraged fresh investment, especially in petroleum companies, Nabil said.

Pakistan’s foreign exchange reserves have risen above US $15 billion in the first week of January, a good sign for the economic recovery and stock market growth, he said.

Despite problems like terrorism and shortages of electricity, gas and water, investment has continued to flow into the stock market, he said.

“Petroleum, fertilizer companies and major banks’ shares have performed well in the stock market in the past few weeks”, Saad Bin Naseer, an analyst and CEO of Pearl Capital Management told Central Asia Online. “We are optimistic that by March 2010, the benchmark index will stay well over 10,000 points”.

Major companies being traded on the KSE are expected to announce sound financial results and dividends that will improve the value of their shares further, he said.

In 2010 the disbursement of economic aid by the Friends of Democratic Pakistan (FoDP) — a foreign investment group formed in 2008 — could positively affect the economy, he said. More than US $13 billion has been pledged to Pakistan over the next five years.

If terrorism, the National Reconciliation Ordinance (NRO) and other issues are tackled effectively, the stock market could show marvelous growth in 2010, Naseer added.

In 2008 foreign investors pulled millions of dollars from the KSE because of the global financial crisis, he said. However, as the world economy marches toward recovery, foreign investors are again turning to Pakistan, he added.

On April 20, 2008, the KSE hit a record 15,773 points amid the strong economic growth that took place under former President Pervez Musharraf. At that time, the market capital of the KSE ballooned to more than US $76 billion.

The downfall of the market began in May 2008 when a power tussle between Musharraf and the Pakistan People’s Party (PPP) began. The PPP formed a coalition government after getting the majority of votes in the 2008 elections.

The political crisis reached a critical point when it — coincided with the global economic meltdown in August 2008 — that wiped out about US $37 billion worth of KSE capital and pushed the index down to around 9,000 points.

To pre-empt further market erosion and to save brokers and major investors from default, KSE management capped the index at 9,000 points on August 28, 2008.

On Dec 15, 2008, KSE regulators removed the cap and the index fell to less than 7,000 points. It finally moved toward recovery starting in March 2009 when the government announced a bail-out package for the brokers and investors who were facing default.

Stock market analysts are of the opinion that the market could again fall if the present government were removed in an undemocratic manner.