On October 12, 1999, the Karachi Stock Exchange’s share index stood at 1,256.94 points. On September 11, 2001, it was at 1,255.98 points.

On September 11, Osama bin Laden rolled his dice. A month later, President George W. Bush brought in the Patriot Act (the US Senate passed the USA Patriot Act on 11 October 2001). The Act “vests the Secretary of the Treasury with regulatory powers to combat corruption, foreign money laundering, close our borders to foreign terrorists and to detain and remove those within our borders”. At the receiving end of the Act were Pakistanis settled in the US and hundi operators out of the Middle East. Pakistanis settled in the US began sending their savings back while hundi operators began loosing business to official banking channels.

In 1999-00, Pakistani-Americans sent back a meagre $80 million. Between July 2002 and February 2003 the remittances from America amounted to a colossal $856 million, Remittances from Canada, Germany, Japan, Kuwait, Norway, Qatar, Saudi Arabia, Oman, the UAE, the UK and the US put together have gone up from $983 million in 1999-00 to $4.2 billion in 2002-03.

On September 11, 2003, the KSE’s 100-share index sat rather uncomfortably at 4,591.79 points; an appreciation of more than 250 per cent since that fateful September day of 2001. That made the KSE, the best performing index on the face of the planet.

The accompanying graph captures both the movement of the index and the volume of home remittances over the last four-years (if we had a real estate price index its movements would have probably traced home remittances as well).

In October 1999, foreigners sold Rs 410 million worth of Pakistani shares and did not stop selling for at least two more years. The largest disinvestment of Pakistani shares by foreign holders came in 2001 when they sold off Rs8,385 million worth of Pakistani stocks.

There is little magic and no secret. The KSE boomed because there was too much expatriate money chasing a stagnant pool of capital stock (the number of companies listed on the KSE has gone down from 756 in 1999 to 700 in 2003, while the accumulated listed capital has moved from Rs223 billion to Rs304 billion over the same period). Foreign investors have shown little or no interest in Pakistan. It has essentially been a technically driven rally.

The inflow picture may now be changing. Our three largest sources of expatriate inflow have been the US, the UAE and Saudi Arabia. In 200-01, Pakistani-Americans sent back $134 million. The following year the inflow from the US went up to $779 million, a wholesome 480 per cent. A year later, there was another jump but a more moderate one; from $779 million to $1,237 million or 59 per cent. In September 2002, Pakistan got $124 million from Pakistani-Americans while in September 2003 the same had declined to $97 million or a drop of more than 21 per cent. In July-September 2002-3, inflow from the US was $330 million declining to $258 million in July-September 2003-04; a drop of 22 per cent.

Here’s the record for the UAE in 2000-01, $190 million followed by $469 million and then the following year $837 million. In percentage terms the first increase amounted to 146 per cent followed by a more moderate increase of 78 per cent. In July-September 2002-03, the inflow from the UAE was $262 million declining to $146 million in July-September 2003-4; a drop of 44 per cent (from Saudi Arabia, inflows have more or less followed past trends of between $350 million to $500 million).

The three conclusions that stand out are: First, the bubble at the KSE (and the property market) has an almost perfect correlation to home remittances (see graph). Second, home remittances—at least from the US—are a consequence of Osama and the Patriot Act. Third, the overall volume of home remittances is tapering off.