View from Islamabad: It's too early to celebrate stock market's record rise

This week's new record by Karachi's stock exchange index - the KSE 100 - must come as an important reason of encouragement for the newly arrived government of Prime Minister Zafarullah Khan Jamali.

Yesterday, the market broke its own record of eight years ago, rising through the psychologically significant barrier of 2,500 points before returning marginally on the back of profit taking.

In the short term, there's every reason to believe that the Karachi stock market's fortunes may well continue to rise. Some of the key companies listed on the market are expected to declare sound profits.

Moreover, Pakistan's investment and business scene appears well flush with liquidity, thanks in large part to the events following last year's terrorist attacks, which prompted a record number of Pakistanis to either remit funds back home or perhaps consider returning to their homeland.

For many such Pakistanis, the fear of getting caught in worldwide investigations linked to money laundering did not present an acceptable risk.

But for those who once again yesterday celebrated the stock market's sustained rise, there are at least two important notes of caution.

First, Pakistan's political outlook under Jamali's government appears set to remain uncertain despite the success of the ruling party in cobbling together new coalition governments.

Yesterday, the market may have taken little notice of the inherent instability that lies with the swearing in ceremony of the provincial chief minister of Sindh, of which Karachi is the capital.

Yet, the arrival of the new chief minister though coincided with the market's latest rise, nevertheless said little about the extent to which Pakistan would witness political stability of the kind which remains long awaited.

Second, Pakistan's equity rise has said little about the fate of its long stagnated large investments in large scale industry and businesses. In recent years, whenever the stock market has surged, Pakistan has been left without clues on exactly how trends in equities would lead to the creation of new jobs.

For a country where almost a third of the population remains impoverished, the stock market's rise can hardly be a significant omen for the mainstream population which must rely on buoyancy across the business, industrial and agricultural sectors, for their well being.

Ultimately, Pakistan's economic future would be driven more so by the fate of its mainstream population rather than the outlook for its equity market.

As for the market's future, Karachi's equity trends continue to show signs of remaining robust, at least in the foreseeable future.

The rise of the Karachi market by a staggering 90 per cent this year, has indeed created many new vested interests among investors who have seen their fortunes rise fast.

For now, many such investors have an interest to make certain that the market maintains its upward thrust despite what others may describe as the underlying weaknesses.

Yet, as all bubbles eventually have to burst, the time for Karachi's equity prices to mellow down, must eventually come.

The writer is a Pakistan-based commentator who writes on political and economic affairs.