session-5 pakistan exchange sets price floor

7/30/2019 Session-5 Pakistan Exchange Sets Price Floor

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Pakistan stocks rise after exchange sets price floor

August 28, 2008|Polya Lesova & Chris Oliver, MarketWatch

NEW YORK (MarketWatch) -- Pakistani equities climbed Thursday, breaking a long losing streak after

the Karachi Stock Exchange imposed an emergency floor under share prices aimed at stemming the

recent precipitous market decline.

Karachi's KSE-100 benchmark stock index gained 0.6%, or 58.85 points, to end at 9,203 points on

Thursday.

Thursday's gains came after regulators introduced market-stabilization measures late Wednesday, when

the KSE-100 index ended down 3% at 9,144 points. Read more.

The board of directors of the KSE decided that individual security prices will not be allowed to trade

below their closing levels as of Wednesday, while the 5% upper and lower trading limits will remain in

place.

The new rules came into effect Thursday and will be in place until further notice.

"The continuous sharp decline in share prices can have implications for the wider financial system," the

board of directors of the KSE said in a statement Wednesday.

The KSE board also said they would call upon the finance ministry and the State Bank of Pakistan to "to

develop medium-term measures for achieving stability in the capital market."

Fresh attempt to stabilize market

The KSE-100 stock index has fallen 34.6% this year, as investor sentiment was dented by politicaluncertainty and a long list of economic troubles, including skyrocketing inflation and a soaring deficit.

Since April 18, when the KSE-100 index soared to a record high of 15,676 points, it has tumbled 41.3%.

In dollar terms, the index has fallen 51% from its April peak.

The market capitalization of the Karachi Stock Exchange stood at $37.96 billion at the end of trading

Thursday, up 0.7% from the previous day, according to data from Karachi-based JS Global Capital Ltd.

"One thing that is badly missing in Pakistan is investor confidence."

JS Global

However, year-to-date, Karachi's market capitalization has tumbled 33.5%.

"One thing that is badly missing in Pakistan is investor confidence," said analysts at JS Global in a

research report on Thursday.

"The global financial crunch, rising commodity prices and [the] local political situation has affected the

macroeconomic picture," they said. "And that is reflected in the stock, money and currency markets."


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Pakistan's currency, the rupee, has fallen about 16% in the last four months.

Wednesday's move is the second time this summer when Pakistani regulators have stepped in to curb

slides in the market. In late June, market stabilization measures were put in place, including trading

curbs, banning short selling and setting up a market stabilization fund.

Then, on July 11, regulators reversed the upper and lower circuit breaker to 5%. They also allowed short

selling and reiterated their intention to launch an Equity Market Opportunity Fund.

That decision to reverse stabilization measures eroded investor sentiment, leading to further sharp

declines in shares. Popular anger over tumbling equity prices erupted on July 17, when more than 200

protestors attacked the Karachi Stock Exchange and demanded a temporary closure of the market to

curb further drops in share prices.

By Polya Lesova, MarketWatch

NEW YORK (MarketWatch) -- Popular anger over tumbling equity prices erupted in Pakistan on

Thursday, underscoring the difficulties regulators face in attempting to prop up falling markets as

turbulence in many of the world's financial markets continues unabated.

The turmoil in Pakistan comes at a time when several emerging markets are considering market

stabilization measures, while regulators in the United States are moving to limit short selling and

speculation in the oil market.

Regulators in China have signaled their intention to stabilize the local market, which became the worst

performer among global markets this week. India has suspended futures trading in several commodities.

In Pakistan on Thursday, more than 200 protestors attacked the Karachi Stock Exchange, the country's

main equity market, and demanded a temporary closure of the market to curb further drops in share

prices, the BBC reported.

Smaller protests took place in Islamabad and Lahore.

The Karachi's KSE-100 benchmark stock index fell 2.6% to end at 10,212 points, declining for a 15th

session in a row. It is down 27.5% year-to-date. Read more.

"You've seen this before and you'll see it again when a hot stock market has sucked in all the

unsophisticated retail money," said Reiner Triltsch, head of the international equity team at Federated

Investors.

"People who don't understand markets can go down, they get furious," he said, adding that any

government measures to prop up the market usually don't work.


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"In the long run, if the fundamentals are not positive, if liquidity is going away, if growth is slowing, and

then you introduce the specter of increasing interest rates, [government intervention] will not affect the

eventual valuation of the market unless they just shut it down," Triltsch said.

Local investors, who dominate Pakistan's equity market, have learned the hard way how quickly

fortunes can change in the stock market.

Pakistani shares, despite the country's precarious political situation, had a great ride until late April this

year.

In 2007, for example, the KSE-100 index soared 41%. In the first few months of 2008, the KSE-100 was

the best performer among major emerging markets indexes. However, since April 18, when the index

soared to a record high of 15,676 points, the KSE-100 has tumbled 35%.

Regulators intervene

"Any excessive speculation is not conducive to the normal functioning of the market," said Jack Dzierwa,

global strategist and co-manager of the Global MegaTrends Fund MEGAX +0.23% at U.S. Global

Investors.

"You don't want to be over-regulating, but where do you draw the line? No one wants to have the

market completely collapse," Dzierwa said.

The Pakistani market's precipitous decline prompted regulators to put in place market stabilization

measures in late June, which included trading curbs, banning short selling and setting up a market

stabilization fund.

The Karachi exchange, for example, reduced the lower trading curb to 1% from 5% previously and

increased the upper trading curb to 10% from 5% previously. The day the measures were introduced,

shares rallied nearly 9%. See full story.

The new rules, however, also led to a steep decline in trading volume on the Karachi exchange.

Last Friday, regulators reversed the upper and lower circuit breaker to 5% effective July 14. They also

allowed short selling and reiterated their intention to launch an Equity Market Opportunity Fund.

This latest decision eroded investor sentiment. The KSE-100 was down 17% year-to-date on Friday,

meaning that it has fallen 10% since Monday.

"Government measures to control stock price volatility and the slump proved counterproductive in this

case," said Arpitha Bykere, an analyst at RGE Monitor.

"The relaxation of the trading limit has created great uncertainty among investors," she said, explaining

that while the initial rules were positive, the reversal of most of those rules was a big negative.

The risk is that if governments create this kind of policy uncertainty, foreign investors will withdraw

money from the country, which would make it very hard to finance the country's soaring deficits, Bykere


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said. Pakistan is also struggling with inflation, which accelerated to a three-decade high of more than

21% in June.

"Looking at recent trend of stock markets around the world, we've seen extreme stock market

volatility," Bykere said. "Governments are bound to undertake such measures and it's highly

understandable in this kind of market turmoil."

Polya Lesova is a MarketWatch reporter based in New York.

session-5 pakistan exchange sets price floor

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