Equity investors can't have their cake and eat it too

The sharply falling volume of trade on Pakistan's Karachi Stock Exchange (KSE) says it all.

On Monday, the representative KSE-100 index saw just 1,800 shares traded, confirming the worries over the stock market taking a big hit and refusing to trade on an active basis.

Has the KSE gone effectively on strike? That is the question making the rounds actively across Pakistan as analysts weigh the pros and cons of Pakistan heading to the International Monetary Fund (IMF) for a large economic bailout which helps the country overcome an emerging balance of payments crisis.

For the stock market, there are many good reasons to be worried about. After several years of robust rise, the KSE has been overwhelmed by Pakistan's own political and economic pressures as well as economic trends this year, forcing it to fall by a significant margin.

Many of the key stakeholders among brokers and investors on the KSE have had a terribly good going, thanks to the robust increase in the market's share prices, to the point where doubling or tripling of returns year after year, was just a given. This essentially meant the idea of a market crash was really not conceived by those stake holders who believed that they were presiding over a continued rise of the KSE.

Last but not the least, the KSE has been kept exempt of taxes that are routinely applied to other businesses. Consequently, investors in Pakistani equities have had a good going for such a long time that they have become too unused to adjusting to relatively troubling times.

Now, the KSE's top players are eager to get all possible concessions even when Pakistanis are being called upon to tighten their belts in an unprecedented way. In their latest attempt to force pressure on the government to concede to their demands for more concessions, some of the KSE's top brokers in the past week, teamed up with the Karachi based Muttahida Qaumi Movement or MQM-a key ally of the ruling regime, to support their case.

It is difficult to predict exactly how far the government will concede to the MQM's pressure and demands from equity related stakeholders. But it is relatively easier to predict that any relaxation from the Pakistani government in the face of such pressure would be fundamentally wrong. Stock markets by their very nature routinely go up and down.

It is true that equity investors and other stakeholders in a number of other countries have been extended direct or indirect economic support from their ruling quarters. But every case must be assessed differently on its own merits and demerits. For too long, Pakistan's equity investors have tried to get exceptional concessions which are unique to the country but also tried placing themselves within the context of a global picture.

Going forward, the government through the securities and exchange commission of Pakistan (SECP) which is the stock market's regulator, must try to remove an artificial lock which was slapped in late August, to prevent the KSE-100 index from falling below a certain margin. Even if the stock market crashes in the subsequent days and weeks, so be it.

This is essential to find a natural level for the KSE, just as other stock markets around the world have found their own natural levels.

The Karachi Stock Exchange will itself have to find a natural trajectory to head upwards and grow with the passage of time. For too long, the government has found ways of patronising Pakistan's equity investors. It is high time that this patronage now comes to an end.

- The writer is a journalist based in Pakistan.