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Nation has to tackle the declining markets as well
Pakistan's stock market regulator - the SECP or Securities and Exchange Commission of Pakistan - is typically wary of jumping into the country's political fray.
- By Farhan Bokhari, Special to Gulf News
- Published: 23:59 August 12, 2008
Pakistan's stock market regulator - the SECP or Securities and Exchange Commission of Pakistan - is typically wary of jumping into the country's political fray.
But as uncertainty mounts this week in the wake of a move by the country's ruling coalition government to impeach the president, the SECP finds itself squarely involved in trying to protect its core interest, which is the outlook for the country's three stock markets.
On Monday, SECP officials revealed for the first time that they had quietly advised managements of companies listed on the Karachi Stock Exchange to buy back their shares in a significant effort to guard against further fall in share prices.
It is clear that the SECP expects further hits to come for equity investors even though Moody's - the global investor service - this week kept its rating unchanged for Pakistan.
President Musharraf who is presently at the centre of Pakistan's political storm has overseen more than five years of economic recovery until June 2007. He was generously aided by international assistance from a diverse group of western countries led by the US aid in recognition for Pakistan's support to the US-led war on terror.
This assistance was uniquely helpful in not only giving a fillip to the overall economic trend-line but also in giving an impetus to the Karachi Stock Exchange (KSE). During those years of high growth, the KSE rose to become one of the world's fastest growing emerging markets - a country that was targeted by some of the leading western fund managers.
But since April 18 this year, when the KSE-100 index touched its historical all-time high of 15,676 points, the index has fallen by more than 37 per cent while foreign and even domestic investors have searched for every opportunity to jump ship.
Now, the SECP's hope in advising companies to buy back their shares is simply to find ways of protecting them from a sharp reduction in the value of their market-listed shares.
The move coincides with other difficult realities for the stock market. Just last month, the Pakistani government presented the idea of launching a market stabilisation fund worth Rs30 billion or $410 million to invest in buying KSE shares.
That would have helped in providing some stability to the market. Tragically though, it has so far been difficult for the government to find investors who would be willing to pitch into that fund.
In another challenge for investors, the Pakistani rupee this week fell to a conversion rate of just over Rs73.80 to the dollar, the lowest that the currency has dropped against the US currency.
Altogether, the Pakistani rupee has fallen more than 20 per cent against the dollar since January this year. As political conditions deteriorate with consequences for the economy, it is far from clear where the stability would come from.
Part of the problem lies in factors that are exogenous to Pakistan - notably the global oil prices which may have retreated recently, but still present Pakistan with an unaffordable reality.
Whatever be Musharraf's fate in the days ahead, the government will have little room left to manoeuvre if indeed the economic decline continues at its present pace. Pakistan needs stability and it can happen only if its economic conditions begin returning to normal.
As the new government grapples with a difficult political situation, it must also focus its energies on reassuring the community of investors that there will be room for further improvement going forward.
The writer is a journalist based in Pakistan.
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