KARACHI, Oct 8: The earthquake that shook the country on Saturday morning, though an exceedingly heart-breaking event is nonetheless, unlikely to impact the cold and cruel world of capital markets.
Stock market investors had been watching the television screens all through the day to see if their investment in industrial stocks has been buried under the debris, but there was no news of any industrial destruction due to the catastrophe. “It would have caused severe losses, had the earthquake hit a cosmopolitan city or industrial estates”, said Mohammad Sohail, director equity broking and Research at Jahangir Siddiqui Capital Markets Limited (JSCL).
He observed that unlike developed world the habit of insuring assets is yet to be formed in Pakistan. In US and Europe, for instance, normally under such circumstances, the biggest losers are the Insurance companies, which are swamped under the burden of claims.
For instance, Fitch Ratings of US had calculated at the end of September losses caused during the 2005 hurricane season, which saw hurricanes: Rita, Dennis, Katrina, and Ophelia. Although Rita was a smaller storm than Hurricane Katrina, it still was a significant storm. Thus, Rita could well have represented one of the 10 costliest catastrophe losses in the US history. Together all those hurricanes during 2005, cost insurers losses of as much as $70 billion, which represented approximately 17.5 per cent of the US insurance industry’s statutory surplus, or approximately two full years of statutory earnings.
But here in Pakistan, even the fast growing life insurance sector cannot visualized to have reached far flung areas, where payment of premium could mean a whole year’s earnings for the poor people dwelling in those areas. Other departments of insurance companies comprise those that protect against ‘fire’ and ‘marine’. As the cargo shipped by sea is not involved, ‘marine’ could be left aside. And fire insurance policies are usually drawn by industries under compulsion of law. A private residential apartment covered under fire insurance would be a rare case indeed.
Insurance companies, even otherwise, are non-performers on the stock markets. The four private sectors listed life insurance companies are in gruelling competition with the giant State Life Insurance Company (SLIC). The latter is on the privatization agenda, but quite low on the list and so at this time its joys and sorrows, are not of much concern to the stock market investors. None of the general insurance companies looks to have much to loose. The fastest growing sectors on the stock market are the banking; cement and oil & gas.
It is of course too early to assess if the oil & gas exploration activities might slow down due to the natural disaster. Also the transportation of goods from industrial areas of the North to major cities and the fast moving consumer goods (FMCGs) to the remote areas, could be a slightly difficult task. But even that is unlikely to hit the fundamentally strong, rapidly growing companies. The government would have to loosen its purse strings to provide whatever resources available for the relief. It would be sometime, before the exact impact on the growth rate would be assessed. But counters are opening up, by both the government and the private sector everywhere to collect ‘relief funds and goods’ from the public; the response is as could be expected: Patriotic to the core.
When the stock markets open up on Monday, if investors are found disinterested in trading, it would not be due to the fear of loss of their investment, but the natural gloom that must envelop the country for some time to come.
