Political reasons can undermine market gains

Islamabad: Pakistan's key stock prices on the Karachi Stock Exchange (KSE) gave new reasons for investors in the past week to consider pulling out of the market at short notice. Amid mounting political uncertainty, the KSE-100 index fell below the recently celebrated mark of 14,000.

The earlier success of the index in rising above the 14,000 point level, gave much of an opportunity to the country's eternally optimistic officials with the ruling financial establishment and ever positive analysts to predict long term rises, notwithstanding the effects of growing political uncertainty. They may be right but only up to a point.

The KSE index has surged ahead in recent years, setting new records for its performance level as Pakistan's economy has gone through a bold recovery process. During that time, parts of the economy, most notably its corporate sector, have gone through a lift, driven in large measure by growing economic growth rates.

Currency reserves

Other important indicators that have supported this growth included a significant improvement in the level of foreign currency reserves and a sharp increase in the values of Pakistan's imports and exports.

In the short term, the aggravation in the stock market has come due to mounting worries over a key verdict due to be given by Pakistan's supreme court, on the legal petitions that challenge the candidature of General Pervez Musharraf, the president, who had re-elected himself on October 6 for another five years.

The court must now decide if General Musharraf will be able to continue to serve as president while also positioned as chief of military staff, or declare his election null and void. The latest phase of Pakistan's economic recovery has been overseen by General Musharraf as he benefited from billions of dollars poured by the United States to the benefit of a key ally in the war on terror.

Future growth

However, once the political picture becomes clearer and the controversy is resolved surrounding General Musharraf, the future growth of the KSE should be a given. Even as share prices fell in recent days, shares of companies such as Siemens Pakistan, Nestle Pakistan, Pakistan Engineering, Hino Pak, BOC Pakistan and Bata Pakistan were among those who gained in value. For investors, such shares represented the possibility of continued gains in spite of anxieties for the moment.

Aside from matters related to politics, investors must for now remain comforted by signs of the stability of the rupee. In the 1990s before General Musharraf seized power in a 1999 military coup, a continued annual devaluation of the rupee was considered almost as a given.

In the short term, in spite of some recent losses in the Karachi stock exchange, most investors are likely to stay the course and try to face the storm ahead, rather than jump ship by liquidating their assets.

- The author is a journalist based in Pakistan.