Anxious investors find reassurance in recovery of Karachi stock index

The recovery across Pakistan's main stock market, the Karachi stock exchange (KSE) last week, marks a measure of reassurance for the community of otherwise anxious investors.

Pakistani investors remain potentially perturbed over the outlook in the short to medium term, influenced mainly by expectations of further turmoil before, during and after parliamentary elections due in January.

For the moment, equity investors are not jumping out of the stock market, in spite of a slowdown in the entry of new investments to the stock market.

The year-end also fails to help as many investors typically consolidate their portfolios towards the tail end of December, in preparation for taking fresh positions when the new year begins.

With elections due in the first half of January, it is possible that investors may wait around for a bit to see the results from the polls before proceeding ahead with new investment positions.

Related factors

Once the dust settles after parliamentary elections, equity investors will in all likelihood take account of three related factors in making their choices:

First, the extent to which a newly elected government is able to forge a solid workable relationship with president Pervez Musharraf will be an important consideration.

Unlike the acrimony which prevails upon Pakistan's political order today, only a functional regime which is able to work with the president will provide a guarantee for a qualitatively new and relatively more stable future.

Second, the future will also be dependent upon the extent to which the new government's economic policies work to reassure anxious investors.

For now it appears that all the main political parties broadly support the same kinds of economic choices. However, going into the future, investors may review their positions based partly on the extent to which a new regime offers the promise of carrying forward a reformist agenda.

This would imply not just being theoretically committed to the right set of reforms but also demonstrating the ability to carry those reforms forward.

Considerations such as having the confidence of the largest segment of the business community will inevitably become a key factor in deciding the credentials of a future government and the extent to which it is able to provide comfort to Pakistan's business community.

Finally, the mood among stock market investors will also be driven by exogenous factors including those well beyond the control of the Pakistani regime.

One key factor will of course be the future of global oil prices that have already begun haunting policy makers in many countries.

Pakistan's position not just as an oil importer but also as a growing energy consumer, makes it increasingly dependent on oil imports.

In the past few years, a proliferation in the number of vehicles on Pakistani roads has done little to improve the level of comfort as far as energy conservation is concerned.

Oil exports

On the contrary, one consequence of success has indeed been a sharp increase in the value of oil imports which has now become a bit of a liability as global oil prices remain significantly higher than just a few years ago. For Pakistan's stock market investors though, the silver lining may indeed be that rising oil prices have been of benefit to oil producers from the nearby Middle East region.

A number of investors from the Arab world have already jumped in to the fray of Pakistan's business world in recent years, as they have stepped forward to invest in a large variety of areas from outright acquisition of companies to investments in individual stocks of different companies.

The next Pakistani government will probably do a great service to itself if it is to move quickly and decisively to lure more investments from the Arab world as an essential pillar to build up on the success of the economic recovery from recent years.

- The writer is a journalist based in Pakistan.