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Pakistan post-election market rally fizzles out PDF Print E-mail
Wednesday, 10 September 2008

REUTERS, KARACHI- An early rally in Pakistani stocks fizzled out on Monday despite hopes that a presidential election over the weekend would reduce uncertainties, as investors want to see concrete action to bolster the economy.

Asif Ali Zardari, widower of former prime minister Benazir Bhutto, swept to victory in a presidential election on Saturday to replace former army chief Pervez Musharraf, who stepped down last month rather than face impeachment.
 
"Since investor confidence has not yet been fully restored, cautious investors are booking profits at higher levels," said Shuja Rizvi, director broking operations at Capital One Equities Ltd.
 
The Karachi Stock Exchange's (KSE) benchmark share index ended 45.91 points or 0.5 percent lower at 9,296.23, having rallied more than 1 percent in early trade.
 
Pakistan's main stock index, which rose for six consecutive years from 2002 and was one of the top performers in Asia during that period, had plunged 41 percent from a lifetime high in April. The index is down 34 percent since the start of the year due to political uncertainty and weak economic fundamentals.
 
The authorities have taken a series of measures to stop the freefall since mid year and on Monday KSE members asked the board to retain a 9,144 floor on the index, imposed on Aug. 28.
 
They also asked the board to give 15 days notice before taking the safety net away, market sources who attended a meeting between the membership and the KSE directors told Reuters.
 
The board is scheduled to meet on Tuesday to decide.
 
Among the most active companies, Oil and Gas Development Co Ltd was flat at 97.93 rupees, Engro Chemicals fell 4.0 percent to 180.44 rupees and Nishat Mills shed 4.8 percent to 46.71 rupees.
 
RESERVES DWINDLING
 
The Pakistani rupee is near all-time lows, foreign currency reserves are depleting and inflation is running over 25 percent. Analysts say the government will have to deliver more than words for any sustainable recovery.
 
They say the government has to make good on commitments to cut its borrowing from the central bank, reduce the fiscal deficit, cut the balance of payments deficit and secure billions of dollars of financial assistance from friendly governments and multilateral lenders to bolster currency reserves.
 
"As the initial euphoria over the election wears off, the reality of the economic crisis will hit Pakistan," said Asad Iqbal, managing director at Ismail Iqbal Securities Ltd.
 
"If policy decisions are not made in a hurry to bring the country back from where its heading, then a disastrous situation is inevitable which includes default on foreign debt."
 
Foreign currency reserves are so low, with $5.5 billion in central bank coffers, that the international bond market has priced in a possible default.
 
"For investors, its the deteriorating reserve levels which are creating a problem," said Mohammed Sohail, director equity broking at JS Global Capital Ltd.
 
Investors anticipate, however, foreign lenders will help Pakistan avoid a default because of support for its transition to democracy and its importance as a frontline state in the global war on terrorism.
 
The rupee closed weaker at 76.45/55 to the dollar compared with Saturday's close of 76.20/30, and an all time low of 77.45 struck last Wednesday.
 
The rupee has depreciated 19.42 percent against the dollar since the start of the year.

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