Pakistani index likely to fall once curbs are removed

The Pakistani rupee is finding relative comfort from news of an imminent International Monetary Fund (IMF) loan coming to Pakistan's rescue. On Friday, the exchange rate of the rupee remained virtually unchanged as currency traders took a sigh of relief from frantic speculators lining up to buy or sell the dollar.

For players on the Karachi stock exchange (KSE), a relative stability of the rupee is welcome news.

For months, the KSE-100 index has taken a beating in the wake of Pakistan's worsening political and economic conditions. The net effect of the hit by a falling currency and a sharply falling stock market has caused what many consider a double whammy for equity investors.

Going forward, however, the fate of the KSE-100 index remains hugely unclear. For now, the index remains locked at an artificial level where it was held in late August, and not allowed to go down further. At some stage, hopefully, the KSE's management will have to remove this restriction and allow the index to move freely.

As Pakistan remains under political and economic pressure on a number of fronts, many analysts predict that the KSE-100 index will fall at least 15 to 20 per cent if not more, once the KSE's management removes the restriction.

Such a restriction removal means significant losses for those exposed to the stock market. However, when stock markets worldwide are taking a huge hit, it doesn't make any sense for Pakistan to protect its equity investors.

Just like elsewhere, such investors must go through a period of turbulence and recover when the fundamentals have improved and the outlook for the equity market is lifted. Taking such a position for the KSE's management would be in line with how stock markets elsewhere in many parts of the world are inclined to deal with such turmoil.

- The writer is a journalist based in Pakistan