Budget had 'peripheral' effect on KSE trends

Islamabad: Pakistan's new budget last week had little other than a peripheral effect on trends on the Karachi Stock Exchange (KSE) - home to the country's community of equity investors.

For the moment, stakeholders on the KSE have reconciled themselves to remaining locked within a narrow band where the market's daily trends are driven by ups and downs without a radical and sizeable movement either way.

For investors, the new budget does not radically alter the course to the future as far as the stock market is concerned. Indeed, investors in the KSE heaved a sigh of relief when the government chose to back away from its reported plans to slap a capital gains tax on the stock market.

But the KSE's optimism may simply be misplaced. The stock market is typically a barometer of business and investor confidence tied to any economy. But the Pakistani government has used the budget to spur economic confidence at a difficult time for the country, just when economic confidence is weak, flight of capital has gathered momentum and the volume of investments, both already in place and those due to arrive in the future, remains far from satisfactory.

All in all, it is safe to assume that the outlook for the Pakistani economy is hardly promising. Under such circumstances, equity investors in the stock market must consider three equally vital points.

Bottom line

First, if the economy's performance continues to be modest and below expectation, the result would indeed just continue to depress future prospects.

This essentially means that it is fundamentally wrong for stakeholders in the stock market to keep on ignoring some of the key macro and micro indicators tied to the economy, to the extent of disbelieving the many words of caution.

The bottom line is simply that without a robust economic revival in Pakistan, a revival of prospects for the stock market is simply not possible.

Second, the stock market's own performance must also be scrutinised on key matters related to the market itself. For stakeholders in Karachi, the realisation of embracing significantly better standards on a variety of issues, holds the key to their long term future.

A number of reforms have indeed taken place that have given a new and improved twist to the KSE's future. But a number of reforms are yet to take place. For many new comers to the Karachi stock exchange, the road to the future must take in to account a number of further reforms beyond the ones already in place.

These include matters like a far more vigorous watchdog type of arrangement to tackle the recent complaints of the continuation of insider trading and inside information.

Finally, the future of the KSE can not be divorced from the future of Pakistan's overall outlook especially the country's political future. At a time when Pakistan's internal conditions show growing divisions on political grounds, there can be little scope for peace and prosperity.

- The writer is a journalist based in Pakistan.