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21 May 2024

Pakistan market will absorb the shock

By Vigyan Arya



Stock markets in Pakistan are expected to wake up to a calm day of trading tomorrow after a three-day closure following the assassination of former prime minister Benazir Bhutto. She was killed on Thursday shortly after the markets in Pakistan closed for the day and so began a three-day mourning period that analysts believe will have a minor effect on the price of shares and the Pakistani rupee.

“Had the incident taken place in the middle of the week, or for that matter, even in the middle of the day, the repercussions would have been severe and longer lasting,” said Maqsood Alam, a senior financial analyst at the Karachi Stock Exchange.

About 32 people have been killed across the South Asian country in the rioting that followed Bhutto’s death, AAJ television channel reported yesterday. Angry mobs have set factories, shops, petrol stations, banks and hundreds of cars on fire in Karachi, the broadcasters said. The army and Rangers – a paramilitary force – have been deployed in Karachi and other parts of Sindh province to quell the riots, Interior Ministry spokesman Javed Iqbal Cheema said. The benchmark Karachi Stock Exchange 100 Index closed at 14,772 points, down by 42.77 points or 0.3 per cent on Thursday before Bhutto was reportedly shot by an assassin who then blew himself up.

“Overall, the market index has gained 47 per cent this year, and, after a temporary fall, it is sure to maintain this level, if not make further gains,” said Alam.

The expected gain can be attributed broadly to recent investments made in Pakistan by other countries, including the UAE, resulting in a massive increase in Foreign Direct Investment flow to Pakistan.

In fact, the UAE has promised to boost investment from the Emirates and the region in mega projects in Pakistan worth Dh130 billion.

It has been reported that Pakistan has been enjoying rapid economic growth over the past four to five years, similar to others countries in the region.

“This has been mainly due to investments in massive projects, that get reflected in the stock market,” said Nabeel ul-Rehman, a Dubai-based investor in the Pakistan market. “Unforeseen incidents are normally expected to bring the market worm crawling down, but in the Pakistan market, these uncertainties are accounted for, considering the traditional volatility in the country,” said Rehman.

Basically, investors in the Pakistan market keep themselves padded for unexpected uncertainties, and in times of crisis the market survives without going through sudden falls, Rehman said, and felt that incidents in the country in the recent past, including the bombings at Lal Masjid in Islamabad, have had little impact in the region.

This could mainly be attributed to the fact that even though Pakistan is one of the fastest-growing economies in the region, it is one of the least economically integrated in the region. For instance, trade between India and Pakistan is a tiny fraction of their combined GDPs, which means incidents in both the countries have little or no affect on each other’s markets.

A calm and steady movement in the markets will also be used as a signal by the current government that the elections will go ahead as planned, Rehman said. Conversely, he said, “the promise of holding elections on January 8 will lead to stability in the market, albeit with minor ripples”. Investors, whether local or from abroad, want to see progress towards the restoration of civilian rule in Pakistan, he felt.

Bhutto was the leader of Pakistan’s largest political party and was expected to achieve her third victory in the general elections.

She belonged to a secular and pro-Western dynasty.