Pakistan stocks drop 4.6 per cent as fears grow over protests

Published August 11, 2014
A Pakistani stockbroker monitors the latest share prices during a trading session at the Karachi Stock Exchange (KSE) in Karachi on August 11, 2014 - AFP
A Pakistani stockbroker monitors the latest share prices during a trading session at the Karachi Stock Exchange (KSE) in Karachi on August 11, 2014 - AFP

KARACHI: Pakistani stocks saw a huge fall of 4.6 per cent on Monday, sparked by fears of a political crisis as opposition figures called on supporters to join a march to overthrow the government.

The benchmark Karachi Stock Exchange plunged by 1375 points or 4.6 per cent to 28,037 in the morning trading session, reversing weeks of positive performances that saw it touch a 68-year high.

“In the beginning investors believed that there might be some political reconciliation before the march takes off,” said Mohammad Sohail, the head of Topline Securities in Karachi.

“But after the yesterday call of Qadri, panic gripped the investors,” he said.

The drop came as the capital of Islamabad braces for protest marches led by Imran Khan and cleric Tahir-ul-Qadri who have vowed to topple the government of Prime Minister Nawaz Sharif.

The two plan to march on August 14 accompanied by tens of thousands of supporters, claiming that last year's general election was rigged.

Both protest rallies will be held on Thursday when Pakistan celebrates its independence day.

“This is the largest ever fall in the stock value in one day as panic grips investors,” said Farhan Mahmood, a research analyst at Karachi-based Sherman Securities.

Pakistan's economic outlook has generally improved since the government of business-friendly Sharif came to power.

Foreign exchange reserves have doubled from $7 billion to $14 billion following succesful negotiations with the International Monetary Fund for debt servicing assistance, the sale of bonds, as well as auctions for 3G and 4G licences.

In July, ratings agency Moody's upgraded Pakistan's country outlook to 'stable' from 'negative' citing its improving external liquidity position and commitment to reforms.


The market is panicking. You shouldn’t


The article extract below was published in Dawn's Sunday Magazine, August 10, 2014

The Karachi Stock Exchange is notoriously bad at judging the impact of political events on financial outcomes. That means that, for a politically sophisticated observer, market gyrations brought about by mass political protests or other political noise — such as those of this past week — can represent a fantastic buying opportunity.

Why is the market so bad at judging political events, you might ask? Because nearly all Pakistanis have been taught lies about our history, and our culture of keeping silent about inconvenient truths means that most people have not developed a world view that conforms to reality. This is why we believe in stupid conspiracy theories that basically all boil down to “we’re perfect and the whole world is jealous and out to get us”.

You may not think this matters to markets and investing, but it does.

The KSE is more than just the physical stock exchange and its management.

It is the 200 brokerage firms, their thousands of employees and hundreds of thousands of clients all making investment decisions simultaneously that results in a collective view of what they think the future holds.

Any market is subject to the delusions and hysteria that grip its participants. In other countries, such delusions and myths tend to be about economic matters.

In ours, the political and religious can be quite important as well.

Nonetheless, over the long run, the market is forced to reconcile with reality, because commerce trumps ideology for enough people enough of the time.

That means that, while the short run can seem to validate those delusions held by the public, the long run will bear out the investment hypotheses of those who are aware of reality.

Read more

Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

Reforming militants
24 Jul, 2024

Reforming militants

Such initiatives have been tried before, in Swat for instance, at centres run by the military as well as NGOs.
IPP debate
24 Jul, 2024

IPP debate

A FIERCE debate blaming the exorbitant electricity prices on expensive power purchase agreements with IPPs has been...
Political vendettas
24 Jul, 2024

Political vendettas

IT seems that the PML-N and PPP need to be reminded again that they are doing themselves a considerable disservice ...
Security concerns
23 Jul, 2024

Security concerns

All stakeholders want what is best for the country and its people; their differing approaches shouldn’t be viewed with such suspicion all the time.
Frankfurt vandalism
23 Jul, 2024

Frankfurt vandalism

THE state needs to seek serious answers from the German authorities regarding the July 20 mob attack targeting...
Stressed cotton economy
23 Jul, 2024

Stressed cotton economy

DECREASING cotton production should be a worry for the government because of its socioeconomic implications. Early...