Identifier
Created
Classification
Origin
09KARACHI24
2009-01-26 04:50:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Consulate Karachi
Cable title:
KARACHI - STOCK MARKET CONTINUES DOWNWARD TREND
how-toVZCZCXRO4731 RR RUEHLH RUEHPW DE RUEHKP #0024/01 0260450 ZNR UUUUU ZZH R 260450Z JAN 09 FM AMCONSUL KARACHI TO RUEHC/SECSTATE WASHDC 0885 INFO RUEHIL/AMEMBASSY ISLAMABAD 0350 RUCPDOC/DEPT OF COMMERCE WASHDC RUEATRS/DEPT OF TREASURY WASHDC RUEAIIA/CIA WASHDC RUMICEA/USCENTCOM INTEL CEN MACDILL AFB FL RHMFIUU/CDR USCENTCOM MACDILL AFB FL RUEKJCS/SECDEF WASHINGTON DC RUEHLH/AMCONSUL LAHORE 2634 RUEHPW/AMCONSUL PESHAWAR 4517
UNCLAS SECTION 01 OF 02 KARACHI 000024
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: EFIN ECON PK
SUBJECT: KARACHI - STOCK MARKET CONTINUES DOWNWARD TREND
REF: A: 08 Islamabad 3888
B: 08 Karachi 501
C: 08 Karachi 636
D: 08 Karachi 512
E: 08 Karachi 441
UNCLAS SECTION 01 OF 02 KARACHI 000024
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: EFIN ECON PK
SUBJECT: KARACHI - STOCK MARKET CONTINUES DOWNWARD TREND
REF: A: 08 Islamabad 3888
B: 08 Karachi 501
C: 08 Karachi 636
D: 08 Karachi 512
E: 08 Karachi 441
1. (SBU) Summary: Driven by foreign investor portfolio
divestitures, a need for funds to meet margin calls, and decreased
institutional investing, the Karachi Stock Exchange (KSE) - 100
continued its downward trend during the week of January 19 - 23,
losing 9.21 percent to close at 4,929.54. New rules have attempted
to increase transparency in listed member transactions and
facilitate corporate repurchases of stock. However, political and
economic uncertainty, an unstable rupee, and Pakistan's suspension
from the Morgan Stanley Emerging Markets Composite Index may hamper
a market rebound for some time. End summary
Karachi Stock Market Continues Downward Trend
-------------- --------------
2. (U) The Karachi Stock Exchange (KSE) - 100 index closed on
January 23 at 4,929.54 on a volume of around 92.2 million shares,
after opening the week at 5,429.72 (a 9.21 percent decline). The
index has moved sharply downward, dropping 46.31 percent, since the
KSE removed minimum price floors on December 15, 2008, when the KSE
- 100 stood at 9,181.49. (Note: The KSE - 100 Index comprises the
top company from each of the 34 sectors on the KSE, in terms of
market capitalization. An additional 66 companies are selected for
the index based on market capitalization ranking. End note.)
3. (SBU) KSE Managing Director Adnan Afridi told Post on January 23
that the current week's drop was the result of a sell-off by foreign
portfolio investors, a need for funds to cover margin calls, and
reduced institutional activity, particularly by the National
Investment Trust (NIT) State Enterprise Fund. Market capitalization
is currently around USD 20 billion, Afridi said. According to him,
many shares are now undervalued, attracting buyers.
Regulatory Attempts to Improve the Markets
-------------- --------------
4. (SBU) KSE has attempted to inject transparency into the market
with implementation of amended listing regulations on January 16.
The new rules cover transfer pricing and corporate governance.
Among the changes are requirements that transfer pricing be set
objectively and that listed corporations maintain a detailed record
of such transactions.
5. (SBU) KSE officials and brokers have also lauded the
January 10 Securities and Exchange Commission of Pakistan (SECP)
amendment to section 95A of the Companies Ordinance (1984),that
will allow listed companies to buy back and hold shares as treasury
stock for resale at a later date. Previously, companies had to
cancel their own shares once they repurchased them.
Political and Economic Uncertainty, Rupee Depreciation Factors in
Market Instability
-------------- --------------
6. (SBU) Arif Habib, Managing Director of Arif Habib Securities
Limited, opined that market conditions have been adversely affected
by uncertain political and economic conditions in the country as
well as tensions with India in the wake of the November 2008 Mumbai
terrorist attack. Habib also pointed out that an unstable and
depreciating rupee has sidelined many foreign investors.
Comment
--------------
7. (SBU) Given the dismal world economic outlook and Pakistan's
economic and political problems, the KSE may not substantially
rebound for some time. Pakistan's suspension from the Morgan
Stanley Composite Index for Emerging Markets appears to have
discouraged foreign institutional investors. Market officials and
brokers expected a significant drop in market values after removal
of the floor placed on August 28 when the market hit a 33 month low
(ref B),but the size and duration of the decline have surpassed
their expectations (refs C, D). Despite the rapid decline,
Pakistan's stock exchanges fortunately have not seen another round
of violence similar to the July 17 riots (ref E). Foreign and
institutional investors have driven the drop in market values and,
even given the possibility of bargain share prices, may not return
to Pakistan's markets until the economic and political situation in
KARACHI 00000024 002 OF 002
the country improves.
FAKAN
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: EFIN ECON PK
SUBJECT: KARACHI - STOCK MARKET CONTINUES DOWNWARD TREND
REF: A: 08 Islamabad 3888
B: 08 Karachi 501
C: 08 Karachi 636
D: 08 Karachi 512
E: 08 Karachi 441
1. (SBU) Summary: Driven by foreign investor portfolio
divestitures, a need for funds to meet margin calls, and decreased
institutional investing, the Karachi Stock Exchange (KSE) - 100
continued its downward trend during the week of January 19 - 23,
losing 9.21 percent to close at 4,929.54. New rules have attempted
to increase transparency in listed member transactions and
facilitate corporate repurchases of stock. However, political and
economic uncertainty, an unstable rupee, and Pakistan's suspension
from the Morgan Stanley Emerging Markets Composite Index may hamper
a market rebound for some time. End summary
Karachi Stock Market Continues Downward Trend
-------------- --------------
2. (U) The Karachi Stock Exchange (KSE) - 100 index closed on
January 23 at 4,929.54 on a volume of around 92.2 million shares,
after opening the week at 5,429.72 (a 9.21 percent decline). The
index has moved sharply downward, dropping 46.31 percent, since the
KSE removed minimum price floors on December 15, 2008, when the KSE
- 100 stood at 9,181.49. (Note: The KSE - 100 Index comprises the
top company from each of the 34 sectors on the KSE, in terms of
market capitalization. An additional 66 companies are selected for
the index based on market capitalization ranking. End note.)
3. (SBU) KSE Managing Director Adnan Afridi told Post on January 23
that the current week's drop was the result of a sell-off by foreign
portfolio investors, a need for funds to cover margin calls, and
reduced institutional activity, particularly by the National
Investment Trust (NIT) State Enterprise Fund. Market capitalization
is currently around USD 20 billion, Afridi said. According to him,
many shares are now undervalued, attracting buyers.
Regulatory Attempts to Improve the Markets
-------------- --------------
4. (SBU) KSE has attempted to inject transparency into the market
with implementation of amended listing regulations on January 16.
The new rules cover transfer pricing and corporate governance.
Among the changes are requirements that transfer pricing be set
objectively and that listed corporations maintain a detailed record
of such transactions.
5. (SBU) KSE officials and brokers have also lauded the
January 10 Securities and Exchange Commission of Pakistan (SECP)
amendment to section 95A of the Companies Ordinance (1984),that
will allow listed companies to buy back and hold shares as treasury
stock for resale at a later date. Previously, companies had to
cancel their own shares once they repurchased them.
Political and Economic Uncertainty, Rupee Depreciation Factors in
Market Instability
-------------- --------------
6. (SBU) Arif Habib, Managing Director of Arif Habib Securities
Limited, opined that market conditions have been adversely affected
by uncertain political and economic conditions in the country as
well as tensions with India in the wake of the November 2008 Mumbai
terrorist attack. Habib also pointed out that an unstable and
depreciating rupee has sidelined many foreign investors.
Comment
--------------
7. (SBU) Given the dismal world economic outlook and Pakistan's
economic and political problems, the KSE may not substantially
rebound for some time. Pakistan's suspension from the Morgan
Stanley Composite Index for Emerging Markets appears to have
discouraged foreign institutional investors. Market officials and
brokers expected a significant drop in market values after removal
of the floor placed on August 28 when the market hit a 33 month low
(ref B),but the size and duration of the decline have surpassed
their expectations (refs C, D). Despite the rapid decline,
Pakistan's stock exchanges fortunately have not seen another round
of violence similar to the July 17 riots (ref E). Foreign and
institutional investors have driven the drop in market values and,
even given the possibility of bargain share prices, may not return
to Pakistan's markets until the economic and political situation in
KARACHI 00000024 002 OF 002
the country improves.
FAKAN