TechLahore

The Karachi Stock Exchange has outpaced both the rising NASDAQ and the bullish Dow Jones during the past 6 months.

The Karachi Stock Exchange took a beating late last year and early this year, as did most of the other international bourses. Over the last six months, though, it has staged a rally that has exceeded the much talked about bull run on Wall St. While the crisis that the global economy has been in during the past two years has not yet withered away, the increases seen in the last six months on the KSE are definitely food for thought and a welcome topic of conversation. Why has this happened and what does the future hold?

The rally can definitely be ascribed, in small part, to the improvement in international indices. However, only to a very small degree. There isn’t enough co-dependence between the KSE and other bourses for more profound synchronicity. The big reasons, in my opinion, are:

1) The security situation along the Afghan border has improved tremendously and Pakistan, to the full credit of the Armed Services, has achieved victories which have few parallels in COIN operations. The bouyancy of spirit this gives to the economy cannot be understated.

2) Foreign remittances sent in by Pakistanis working abroad continue to hit all time highs. The most recent data from July 2009 shows remittances for a single MONTH to be in the $750M range. This is a historic high and an almost 20% increase from July 2008. Now, I’ll get to IMF etc. in a bit, but let’s put it in perspective. Pakistanis working abroad are remitting in a single year (almost $10BN/year) what all the IMF programs over a few years are netting the country. So credit needs to be given where it’s due.

3) Ok, so now on to ADB and IMF. Pakistan’s progress on the economic front has been good enough that there have been no issues in disbursements coming in from the IMF and other international lending institutions. The disbursements to me are not the big news. It is the fact that we have arrested unsustainable trends, such as our balance of payments issues, to comfortably qualify for these programs.

4) Foreign portfolio investment coming into Pakistan has resumed. During the week of August 15th, a net addition of about $20M was seen on the KSE. Not bad for a week. And the quantum of cash is, again, not the issue. It is the growing confidence which is the real prize.

And there are a lot of other factors that I will cover in more detail in an exciting upcoming post I’m planning. So for now, let’s consider where the KSE is headed? I don’t necessarily want to focus on near term as in the coming few weeks, but I can tell you that during the balance of this year, unless something completely untoward happens, the KSE is going nowhere other than UP. Positive developments taking place in the energy sector, the attractiveness of advantegous pricing of scrips on the KSE today, increased confidence emanating from a number of areas identified above and key progress on the international relations front (more on that later) are all contributing to my bullish sentiment. Stay tuned.

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