Stock market plunge

With plans for Pakistan’s 3 exchanges to be integrated into one, regulators may now look to toughen their stance

Much of the gain posted by the Karachi Stock Exchange (KSE)-100 Index in 2015 has been eroded in the past few weeks, with billions of rupees being wiped off in the process. From its high of over 36,200, the index stood below the 33,000-point barrier at close on September 7, triggering panic among investors, while making the index highly attractive for those who were unperturbed by the negatives. The panic-induced selling did not just occur overnight and was caused by weeks of uncertainty over the global economic slowdown. China’s unimpressive growth figures and speculations over the US Federal Reserve’s decision on raising interest rates fuelled negative sentiments. Pakistan’s stocks tracked the global movement and shed points in a rally that found resistance at the lower levels.

But that resistance was a scarce commodity on September 4 and September 7 as the 100-index shed close to 1,500 points, with rumours of a regulatory crackdown on brokers, black money and corruption, along with the news of some ongoing investigations spooking investors. The fundamentals did not change, but the stock market never really truly reflects a country’s economic performance. It is a manifestation of people’s hopes and dreams, which when combined with speculation, helps investors make money. Stock market behaviour can be unpredictable, does not always follow fundamentals and logical reasoning may not be enough to predict what might happen next. With plans afoot for the country’s three stock exchanges to be integrated into a single one, the regulator may now look to toughen its stance on various issues. It wants to attract a strategic investor who can take part in the de-mutualisation process. It makes sense for it to put on a show of power. For their part, brokers will be wary. However, there will be those investors too, who might be looking to take advantage of the plunge, as history suggests that the regulator has not always done what it was supposed to do.

Published in The Express Tribune, September 9^th,  2015.

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