KARACHI – The prevailing diplomatic discord between Pakistan and its strategic partners in the United States over the arrest and the claimed immunity of Raymond Davis has begun to reflect adversely on daily share trading at the local bourses. The Karachi Stock Exchange’s (KSE) Progress Report for 2006-2011 reveals that the position of KSE on February 11 had been pulled down to fifth among the top 12 international stock market indices owing primarily to, what the KSE officials said, was the ongoing diplomatic tussle between Islamabad and Washington.
“The daily quantum of foreign investment (at KSE) has reduced,” a KSE official confirmed to Pakistan Today. It goes without saying that almost 80 percent of the current foreign portfolio investment at KSE comes from US Special Convertible Rupee Accounts (SCRA) of the State Bank of Pakistan which reveals, that from July 2010 to date, out of a total of $196.903 million, equity inflows of some $175.328 million had come from the US.
The KSE Progress Report for February 11 shows that last working day of the Karachi bourse had marked the global benchmarks like NASDAQ Composite Index of the US, Nikkei-225 of Tokyo, FTSE-100 of the United Kingdom, Shanghai Composite of China, Hang Seng of Hong Kong, T Weighted of Taiwan, Composite of Seoul, Strait Times of Singapore, Set of Bangkok, Composite of Jakarta and BSE-30 of Bombay positioning 1st, 2nd, 3rd, 4th, 6th, 7th, 8th, 9th, 10th, 11th and 12th, respectively, with the KSE-100 of Pakistan standing at fifth on the day, the report says.
“It was just before the diplomatic controversy, when KSE had clinched the top position among other international market indices,” recalled the KSE official. The situation seems to be set to become grimmer with the passage of time as a day earlier on February 10, the KSE-100 index was positioned third after NASDAQ and Nikkei.
The KSE official said an outflow of $1.0 million, last Friday was particularly illustrative. According to National Clearing Company of Pakistan Limited, the net equity outflows on Friday amounted to over $1.081 million. “The same (equity flow) was positive earlier,” the official said. Other factors attributing the decline in portfolio investment the official said were politico-security uncertainties and a delayed introduction of the leverage product.
Local market players like the brokers also back the view that Davis factor was adversely affecting the local bourse. “The impact is in terms of apprehensions or fear as the level of foreign investment has decreased,” a senior stock broker told Pakistan Today. The broker, however, expressed the hope that the resilient equity market in Pakistan would soldier through the difficult phase. “The market is so resilient and has seen many ups and downs in the history. Because of excellent corporate results it is bound to persevere through this phase too,” the member broker reasoned.
He claimed that the KSE was also relying on the Pakistani Diaspora who, through their offshore accounts, would continue to invest and thus provide the local bourse with a fresh breather. The direct or indirect impact of international developments on national stock markets has been evident on many occasions with India being one such example.
According to the KSE official, the political uprising against the Egyptian president had most adversely impacted on the Bombay stock exchange which, the official said, had dropped to the 12th position among other global indices. “The Indian market is down by 10 percent because of the Egypt issue,” the official opined.
