Pakistan share bounce belies dire straits
07 January, 2013
KARACHI: Pakistan share prices jumped nearly 50 percent last year in a staggering development that belies major problems in an economy where falling foreign exchange reserves and turmoil could spell trouble in 2013.
Its biggest share bazaar, the Karachi Stock Exchange's benchmark KSE-100 Index founded in 1948, reached a record 17,031 points during trading on December 31, 2012, raising hopes among dealers for better prospects in the new year. Average daily volumes rose from 79 million shares in 2011 to 173 million shares in 2012, rising in value from $40 million to $50 million.
"Pakistan's total return has been one of the best performing markets in the world," said Mohammad Sohail, who heads brokerage firm, Topline Securities. By the end of 2012, trade on the KSE-100 was bettered by only Caracas, Istanbul and Cairo. Sohail attributed the growth to a 4.5 percentage point decline in interest rates in the past 18 months, from 14 to 9.5 percent, which he said had boosted earnings and encouraged funds to flow from government securities into equities.
But other experts warned that the boom was an oddity "engineered by local giants" given the worrying state of the economy in a country dogged by Taliban and al Qaeda-linked violence. On January 1 and 2 stocks lost 2.46 percent – the worst fall in 14 months – which analysts attributed to the start of potential turbulence linked to Pakistan's approaching general election. Religious scholar Tahirul Qadri returned from exile in Canada to urge a march on Islamabad to demand electoral reforms, mimicking the protests in Egypt's Tahrir Square that brought down president Hosni Mubarak in early 2011.
"The rise in the KSE-100 is... not supported by any significant foreign inflows. It is a manoeuvred boom," said independent economist AB Shahid. Last year, he said the Pakistani rupee depreciated eight percent against the dollar and it is still under pressure because of depleting forex reserves. In November 2008 the IMF bailed out Pakistan with an $11.3 billion loan package to stave off a balance of payments crisis. But Pakistan abandoned the deal in 2011, refusing to carry out strict financial reforms.
It has since paid back more than $2 billion and owes $6.3 billion between February 2013 and September 2015, according to a spokesman at the central State Bank of Pakistan. But analysts say the repayments strain the rupee and drain reserves, which neither remittances nor US payments for services against terrorism in the form of a Coalition Support Fund can replenish.