Islamabad: They call it the coming bloodbath. The decision by Pakistan's stock market regulator to lift an artificial floor at the Karachi stock exchange (KSE) on Monday marks the removal of a five-month-old anomaly.
The KSE has been surrounded with controversy over this issue, with investors and brokers opposing the lifting of the floor and the government determined to remove it as early as possible.
When the floor was introduced last August, the idea was to prevent the KSE's representative 100 index from falling further after suffering considerable losses. But the floor ended unexpectedly drying up the trading on the Karachi stock exchange.
Some gurus have gone as far as to predict that the KSE-100 index will fall anywhere up to 20 per cent while others forecast a significantly high number as a new regime without any restrictions comes into play.
It is impossible to know how much the index will fall. But forecasts of a bloodbath essentially suggest that the losses will be considerable.
The KSE has been surrounded with controversy over this issue, with investors and brokers opposing the lifting of the floor and the government determined to remove it as early as possible.
When the floor was introduced last August, the idea was to prevent the KSE's representative 100 index from falling further after suffering considerable losses. But the floor ended unexpectedly drying up the trading on the Karachi stock exchange.
Some gurus have gone as far as to predict that the KSE-100 index will fall anywhere up to 20 per cent while others forecast a significantly high number as a new regime without any restrictions comes into play.
It is impossible to know how much the index will fall. But forecasts of a bloodbath essentially suggest that the losses will be considerable.
Opportunity
For the moment it seems that the KSE's fortunes are unlikely to improve. And yet there is all the more reason for prospective equity investors armed with cash to remain in place, ready to jump in to the fray once the dust settles.
In the midst of bleak conditions, the KSE's future may still remain promising on account of companies which are far too under-valued at the moment.
Some of the prime examples listed on the KSE include sectors like oil and gas, agricultural fertiliser products and perhaps the the financial sector. These sectors represent companies which still have solid fundamentals in spite of the troubles surrounding the stock market as well as the Pakistani economy.
At the same time, given that Pakistan's interest rates have risen in recent times, it is advisable for some of the country's savviest investors to consider making deposits in banks, even for the short term.
In times of prospective turmoil hovering on the horizon, bank deposits for the short to medium term offer a relatively promising future.
Back to basics
For the long term, the future of equity investments must remain closely tied to two inter-related considerations. On the one hand, it is essential for Pakistan's overall economic fundamentals to improve considerably before the basic trend line begins to improve significantly.
The recent decision by the government to enter into a new loan agreement with the international monetary fund or IMF has been criticised. And yet, without the discipline that comes with an IMF loan programme, it is impossible to imagine the government adopting the kind of austerity which is necessary to overcome unfortunate legacies of the past such as profligate spending.
The way to a qualitatively better future must depend on a range of trends, including those well beyond the scope of the stock market alone.
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