KARACHI: Ten years is a long period of time for equity markets and if Wall Street could recover from the shock in months, Karachi Stock Exchange now remember it only as a bad dream.
A broker recalls that the KSE was closed down for a week from Sept 17 to 21, 2001 due to panic selling, which had dried up liquidity because of non-availability of ‘badla’.
The first Annual Report 2002 released by the SBP after the event stated: “The Sept attacks in US pushed market over the edge to reach lowest KSE-100 index level for the year at 1,075 points by Oct 2, 2001”. Net outflow of foreign portfolio investment that year stood at $8 million and the net foreign investment amounted to 1.31 billion. Compare that with today’s index level of 10,904 points and foreign investment of the order of $2.5 billion.
“Money goes where there is safety of capital and promise of high returns”, said a broker and in the years that followed 2001, KSE stood out among markets that gave out highest yields. He said that world was never expected to be the same after 9/11, but terror spread all over the world. “In time, investors have learnt to live with it”.
The foreign investors’ visit to the country has diminished but the fear is for the loss of life, not loss of money, says an analyst. Foreign companies continue to operate in all lucrative sectors, such as oil & gas exploration; telecommunication; pharmaceutical and the rest.
The corporate sector has performed in terms of underlying value of its product and not history. The earliest guesstimates by some analysts did not turn out to be true. Cement sector, for instance, did not go on to make the phenomenal profits that were first envisaged over the possible soaring of export demand for the rebuilding of war ravaged Afghanistan and later Iraq.
Cement manufacturers have, however, found more lucrative export markets. A major textile exporter said that the industry had witnessed a drop in fall of orders. He was not sure if all of that was the fallout of 9/11 or growing competition in world markets.
War risk surcharge levied by shipping companies post the 9/11 did bother the leather and textile industry.
Analysts say that the consumer spending has increased which is reflected in larger turnover of fast moving consumer goods (FMCGs) companies.
The number and prosperity of banks have surged over the years, thanks to high spreads. Higher interest rates have troubled the equity investors but brought benefits to National Savings Scheme (NSS) investors. “A 10-year bond I bought in 2001 has now matured”, said an investor.
“The 9/11 events may not itself have put the corporate sector at peril, but the phenomenal rise in terrorist attacks that have since followed forced industrialists, individuals and big conglomerates to search for a safer location abroad for setting up new plants”, said the chief executive of a major local company. “Foreign direct investment has been slow as it is difficult to dismantle industries, but overseas equity investors can take flight at the first sign of danger, which offers comfort to foreign fund managers, he said.