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Islamabad: The sharply falling volume in stocks traded on Pakistan's main market says a lot about the future of Pakistan's investment climate just when the country must reconcile itself with mounting political and economic uncertainty.
Volumes of shares traded daily have plunged sharply since the Karachi Stock Exchange (KSE) and the stock market's main regulator - the Securities and Exchange Commission of Pakistan (SECP), last week introduced new measures to stabilise the market after the KSE struck its lowest level in more than 15 months on June 23.
Under newly announced measures, the stock market's authorities reduced the daily limits in share price movements so that they could rise by up to a maximum of 10 per cent on a single day but fall just by one per cent. This was in contrast to the previous margin when there had been a limit of maximum five per cent either way.
On Friday, the KSE's representative KSE-100 index changed lower by about 0.6 per cent. But more troubling for analysts was a very thin volume of shares - about five million - which was the lowest in the KSE's history.
Bottomline
The bottomline surrounding the KSE is essentially that investors have retreated from the market due to a fragile political situation, worsening economic prospects and doubts about the new government's ability to handle such challenges. The prospects for the stock market to some extent are being driven by uncertainty surrounding the future of President Pervez Musharraf who has overseen Pakistan's latest economic recovery for a few years till a slowdown began about six months ago.
Some of Pakistan's newly elected politicians are keen to force Musharraf out of office. But their hope for Musharraf's exit being the first step towards stability and greater order are unlikely to be met. The most profound issues in today's Pakistan, which will set the course for the future, are essentially the difficult challenge of prevailing insecurity and turning around an increasingly moribund economy.
Tough environment
As long as the new politicians fail to end prevailing conditions the stock market will essentially remain unchanged. This is all the more likely at a time when Pakistan is locked within the ranks of states that face a tough global environment, unleashed mainly by high oil prices. Consequently, the challenge of managing more expensive oil has turned Pakistan into a country faced with fast growing deficits.
The new financial year, which began on July 1, has seen the government move ahead to raise oil and gas prices, in spite of protests from many circles. An indirect hit for the stock market has already come from declining industrial production. Widespread power shortages have forced many companies to curtail production and to instead accept lower profit margins.
The least that politicians can do is to concentrate on issues that matter. Squabbling over ways of forcing Musharraf out of power is just no way to stabilise the country.
The writer is a journalist based in Pakistan.
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