Investors must remain calm in this crisis period

Islamabad: If Pakistan was hoping for the prospects surrounding its equity markets to improve rapidly beyond last week's final settlement of a crucial International Monetary Fund (IMF) programme, those hopes seem to have been quashed.

The feeling of crisis in Pakistan's relations with its larger neighbour, India, following the attacks in Mumbai, for now dominate the country's scene. For a large number of stakeholders including investors in the equity market, such a crisis as the one which surrounds India at the moment, carries repercussions for Pakistan.

Impact

For equity investors, one of the key questions immediately is the extent to which the fallout from the violence in Mumbai will hit relations with India.

For equity players, it is vital to remain calm. Adverse reactions such as panic selling will only make an already adverse situation much worse. For several weeks, investor activity on the KSE has been largely subdued. But other reactions, including aggressively chasing foreign currencies, will have a negative impact.

With the arrival of the IMF programme, at least investors can be assured that Pakistan is not in danger of an imminent default on its foreign debt payments.

It is also important for equity investors to team up with the KSE management and consider ways to improve the element of certainty in the stock market. One of the biggest challenges is the future of an artificial restriction which was slapped on the KSE in August this year.

Unfortunately, such restrictions do not help to overcome the effect of normal forces which drive up or down the stock market's prospects. It is therefore vital that going forward, such a restriction is removed, even if it means that the stock market will take a bigger hit.

The writer is a journalist basedin Pakistan