Dubai's interest in Pakistan's stock market is good for both

The reported interest by the Dubai stock exchange to take a 40 per cent stake in the Karachi stock exchange (KSE) when the Karachi market allows shareholding, represents a firm change for the interests of investors in Pakistan's main stock market.

The state-run Dubai stock exchange said in August it was interested in buying into the KSE but gave no details then about the size of the stake that was being sought.

Under the planned acquisition, members of the Karachi stock exchange will become shareholders in the stock market once a key presidential ordinance is signed to allow the change in the ownership provisions.

It is clear that the Karachi stock market has become a global entity within its own right with sentiment lifted by the worldwide interest from investors. In spite of Pakistan's political turmoil of the past year, the KSE continues to attract investors from all over the world.

If the deal with the Dubai stock exchange is firmed up, the two markets stand to gain. For the KSE this will represent not just an expanded ownership by a premier stock exchange but also the recognition which goes with that change. For the Dubai stock market, the acquisition helps it to establish formal ties with a stock market close to home at a time when the Middle East region as a whole is benefiting from the robust flow of oil money.

For the moment, there are no indications of high petrol prices going into a reverse gear, in spite of clear signs of a global recession. In fact, oil prices will hold on to their present trends and contribute to the continued flow of revenue to oil producing countries in the Middle East. With oil prices at an all-time high comes the prospect of a continued flow of revenue to the region surrounding Dubai. Clearly, one benefit of the KSE's tie-up with Dubai will be the brighter prospect of attracting more Gulf investors to the Pakistani market.

Dubai's investment in the Karachi stock exchange will also bring in much investment inflow for the local equity management and stock brokering community at a time when Pakistan's own economy is going through a slowdown. Injection of funds at this crucial moment essentially brings investments to perk up the local Pakistani business scene.

But going into the future, a follow-up to this investment will have to be built up by two important measures. On the one hand, there will clearly be a need to create more examples of excellence than the ones that exist in Karachi today.

These will include encouraging the inflow of world class management and research values at a time when the KSE is in need to modernise further in many ways. For Karachi's brokers and investors, an investment tie-up with Dubai's stock market could well be the first vital step in a number of measures to encourage the introduction of values of excellence not seen before.

On the other hand, the tie-up could be followed by investments flowing into Pakistan in other critical ways. This may well include undertakings such as encouraging investments via Dubai to the emerging industry of Pakistan's mutual funds, which are relatively new to the country's investment scene.

While Pakistan has been surrounded by political uncertainty for several months, news of the tie-up with Dubai is welcome just at a time when good news are badly needed on the business front. However, the Pakistani authorities must now move rapidly to seize this moment rather than delay what promises to be one of the more promising business opportunities in a long time.

- The writer is a journalist based in Pakistan.