View from Islamabad: Karachi mart profits must translate into wider gains

This week's spectacular rise of Pakistan's key stock market, the Karachi Stock Exchange, defied an important element of conventional wisdom. Rather than take a dip on a day when Pakistan announced that it was indefinitely delaying the next summit of the South Asian Association for Regional Cooperation (SAARC), due to be held in Islamabad in January, the KSE's 100 index chose to broke the 2400 point barrier, returning to an eight- year high.

The fortunes of Karachi's stock market are indeed a matter of joy for many of Pakistan's equity investors who in the past one year have been the beneficiaries of the market edging upwards by more than 84 per cent, making Karachi the world's fastest growing market.

For the year ahead, investors and analysts are still predicting new records with some predicting the 2,500 point barrier to be breached soon.

The hopes for further progress are largely driven by expectations that investors would remain confident, buoyed by excess liquidity and hopes of upcoming privatisations. Pakistan has promised to offer such important companies as the largest oil marketing firm, the largest oil and gas development corporation and one of its largest banks for privatisation by June next year.

Yet, the long term prospects beyond the immediate bull run has to be contingent upon two important variables.

First, as Pakistan's equity investors celebrate their joys, there are indeed anxieties over the future of parts of the country's economy. For instance, foreign investor sentiment still remains subdued, driven by concerns over the internal security environment.

Pakistan last year attracted just $500 million in new foreign investment-a paltry sum by comparison to the country's population of more than 140 million.

Additionally, other disappointments include the failure to create a sharply improved environment for businessmen, many of whom continue to face issues such as a reticent bureaucracy which is just not willing to facilitate their needs.

Faced with the prospect of parts of the economy showing signs of robust improvement as other aspects continue to disappoint, Pakistan's future at best rests on a tenuous base despite improvements of the past year. There's still no clue on exactly how the rising fortunes of the Karachi stock market would indeed promise an improvement for the country's wider economy.

Second, Pakistan's economic outlook in large part depends on the extent to which its leaders can successfully tackle the challenge of meeting the needs of its mainstream population.

While the Karachi market may be significant for the economy of a small section of the country's business elite, most Pakistanis continue to rely on agriculture as their main source of subsistence, where a drought of the past three years has only hit personal fortunes in a significant way.

While the robust rise of the stock market provides much joy to the Pakistan government which this week must be eager to celebrate the new record set by the KSE, it's a rise which still leaves behind many unanswered questions for the economy of a country where most people are still waiting for their quality of life to improve considerably.

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