March 25, 2003	Tuesday	Muharram 21, 1424

KARACHI, March 24: Only a week before the war began, almost every analyst was out with the same forecast: stocks would plunge by 100-200 points in the first two days of the war and rebound thereafter. Exactly the opposite has happened.

On Thursday, when the coalition troops crossed into Iraq, the KSE-100 index raced up by 61 points and gained another 84 points on Friday so as to take the weekend level at 2,550 points — highest in six weeks. But the third session on Monday, saw shares creep back by nearly 20 points. Is there a method in this madness?

There looks to be. For what everyone was betting on was a ‘short and swift’ end to the war. In his morning report of Monday, analysts at Arif Habib Securities said: “Developments over the weekend have clearly poured some cold water that the war might be swift and short. On the other hand, events of the last 24 hours indicate there could be a lot more casualties and surprises ahead.” The analysts said that buyers in Pakistani stocks, like the other world bourses, were trading on the hopes of a quick US victory. In most Asian markets, the optimism that had swept at the start of conflict had deflated.

In an earlier report, Mohammad Sohail, head of research at the InvestCap, observed that the behaviour of oil and stock markets was not something unique. Similar sentiments were observed in the Gulf War also when equities rebounded as soon as the war began.

“The latest war on Iraq — if it remains short — is likely to have some positive implications on the local economy in the shape of continuation of fund inflows from expatriate Pakistanis,” he said. Also the analyst thought that the forex trading was not expected to post major surprises. “With 11 months of import cover, the concern of mounting oil bill is not likely to affect the prevailing dollar-rupee parity of Rs58.80 in the inter-bank market,” he said. But as news of stiff Iraqi resistance filtered in, crude price in the Far East had begun to rise in early morning trade on Monday, sending out signals of concern to most Asian economies, including Pakistan. “With Pakistan producing only 15 per cent of the total oil demand of the country, a higher crude price in international market means rising energy prices here,” Sohail said.

He observed that stock prices of the PSO, the Pakistan Oilfields and the Shell had already rallied in recent months.

“With global oil prices remaining volatile, share prices of these stocks will also show swings in local bourses,” the analyst said, adding that depending upon the fate of future oil prices, those stock would eventually settle down.

Iffat Zehra Mankani, head of research at IP Securities, traced the behaviour of oil prices in the world markets since the break out of hostilities. It is the moot point, Iraq being the world’s seventh biggest oil exporter with exports of 1.8 billion barrels per day under the UN supervision, before the current war began.

“Investors are only hoping to see it as a quick war and the question mark now is about when it is going to end,” said Ms Mankani. She observed that the longevity of the conflict would give further knee-jerk reactions to the already ailing world economy.

“The sensitivity of the area, being used as the battlefield, may lead to a rapid rise in oil prices, which might plunge the world economy into deep recession,” worried the analyst.

So for the moment everyone seems to be keeping one eye on the price of Brent crude oil in the world market and the other on the prices of stocks.