Adil Najam
On Tuesday the Karachi Stock Exchange’s (KSE’s) KSE-100 Index – Pakistan’s equivalent to the Dow Jones Index – broke the psychological barrier of 15,000 for the first time. At the time of writing this (on what is Wednesday morning in Pakistan) the Index remains well above that mark.
The rise of the stock market(s) in Pakistan in recent years has been phenomenal. Much of this matches the rise of emerging markets all over the world, but the rise over the last year is particularly phenomenal given just how depressed, depressing, uncertain and unclear the politics of the country has been. My friends who work in the financial sector tell me that money can be made from bad news as much as from good news. I am sure they are right, though I am not sure if I understand all the nuances of how.
But it still intrigues me why and how the market in an economy like Pakistan – where the stock market itself is rather small in terms of size as well as participation – works in relation to what is happening in the society at large. The charts, and news, clearly indicate that the stock exchange in Pakistan has not been oblivious to the political and socio-economic upheavals of the last many months. But the direction seems to have been clearly upwards and it is not clear just how much of those events are reflected in the market.
One is used in larger markets (USA, Europe, Japan) to seeing the happenings in society and politics to have deep and immediate impacts on the market fluctuations. Is it the same in Pakistan? Or is it that because so many fewer people are actually invested in stocks that the stock market’s rhythms are less intertwined with local happenings and more with global and international happenings (especially if much of the capital flow is from international investors)? And, if, indeed, the stock market in Pakistan is as much of a barometer and reflection of what is happening in the country, then what is it that the market has been telling us all year, and is telling us now?
I know that many of our readers have far greater expertise in this area. Maybe they can help me and others decipher the meaning of all of this better.
(Graphs from Bloomberg)
Well I have a question. How much is the speculation in the larger stock exchanges, such as the Dow Jones, Tokyo or London? Does it increase with increased market capitalization, remains the same or goes down?
my undergraduate thesis looked at the kse’s meteoric post 9/11 rise. its part of a broader trend of ‘financialization’ that has transformed the global economy, particularly in the last 10-15 years. the real issue here, however, is that pakistan is yet to implement a capital gains tax.
we all know that a few rich people are making millions off of speculation and manipulation. (one of the most striking things about our stock market is how little it is actually related to productive investment). at the very least, these investors should be forced to contribute to the tax base.
Ahmad Shahid:
I don’t know the situation in Indonesia, but I believe the Bombay stock market capitalization is more than 1.5 trillion dollars.
Again, since India has a small middle class (compared to its total population), one would expect a smaller market capitalization. Surely, India’s markets can not be as broad based and as well developed as those in industrialized economy. I think there must be a substantial speculative portion and a foreign port folio component in India’s stocks too; otherwise the market capitalization shouldn’t be that much.
The figure that I would really like to see is the one I mentioned earlier (stock market turn over ratio or the no of days a share is held on average). That will really help us compare the level of speculation in various stock markets all around the world.
It is PAD or I should say Pump And Dump philosophy. Big investors are letting the KSE index go high for some time and then these ivestors sell their holdings making a killing and let the small or innocent ivestors suffer.
For a journey, we are not always looking for the fastest car to take us to our destination,convenience to passangers is a big priority.
KSE-100 makes me think we r sitting on a bare jet engine :-) where the people demand a more comforting seating arrangement even if the vehicle is slower.
human development indices have fallen unfortunately, there has been some infrastructure work to some extent but there are no manufacturing industries set up, and consumer buying power has been shown to increase only thanx to consumer credit financing which is simply more debt….