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KSE-100 Index nosedives after Bush’s Pakistan visit

By Farhan Sharif

KARACHI: The unexpected clod response and no major development both on economical and political front during the two-day visit of the US president have shattered the hopes of short-term gains among a large number of investors the at Karachi stock market, that went though a record single session decline on the first trading session after the visit.

The unexpected response from the president of United States, which has the largest foreign investment in the market and whose leading partner in the war against terrorism is Pakistan, worked as a trigger for an already volatile market.

The Karachi stock market on Monday came under heavy selling pressure in all the major items and recorded the heaviest single session decline as the KSE 100 Index lost 468.2 points or 4.1 percent to close at 10,947.09 points compared with the closing level of 11,415.29 points on the previous session.

Bears completely took over the market and made share prices of the majority of stocks to retreat since out of 393 stocks traded during the session share price of only 47 stocks managed to move up whereas the share value of 318 stocks went though decline. The share value of 28 companies remained unchanged.

The second heaviest decline took place on March 17, 2005 when the KSE-100 Index declined by 441.52 points in a single session to close at 9,636.37 points.

“The cold response was unexpected,” said an analyst who asked not to be named. “When compared with the developments at the other side of border, the US president’s response in Pakistan was cold.” Earlier, the visit was expected to provide many gifts from economic and political sides, however despite the historical relations between the two countries it turned out very regular and cold.

The relationship between the two counties began in the Fifties when they signed a defence agreement on the back of US concerns about Soviet expansionism and Indian threat to Pakistan. Under that agreement, Pakistan received a total of two billion US dollars, including $508 million for military assistance, from 1953 to 1961. However, the fledgling relationship got hit due to the wars of 1965 and 1971 between India and Pakistan. In the mid-Seventies Pakistan-US relations improved and the US resumed military assistance in 1975, but that new light was soon blown off in 1979 on account of uranium enrichment by Pakistan. Later, the Soviet intervention in Afghanistan brought Pakistan and the US closer as Pakistan became the frontline ally of the US in the Cold War.

Then in the late Nineties, in response to Indian nuclear tests in May 1998, Pakistan tested its nuclear weapons and faced consequences in the shape of full restriction by the US on non-humanitarian aid. The military coup by President Musharraf in 1999 brought further US sanctions on Pakistan.

September 11 terrorist attack in the US, however, transformed the Pakistan-US relationship, ensuring the enlistment of Pakistan as a pivotal US ally. In October 2001, the US Congress lifted all nuclear-related sanctions on Pakistan, as Pakistan in the war against terrorism pledged its full support to the US. Consequently, a great amount of US aid began flowing to Pakistan. These included aid for health, food, education, democracy, child labour elimination and some other areas. The US government also supported grants or loans and debt rescheduling programmes for Pakistan.

In 2003 President Bush announced a five-year $3 billion aid package for Pakistan starting in 2005. Pakistan is to receive 600 million US dollars each year equally split as economic and military aid.

The US accounts for 24 percent of total exports and eight percent of total imports of Pakistan. T

he US has the largest share in Foreign Direct Investment coming into the country. In the previous financial year of the $1.67 billion FDI, US share was 22 percent. Of the $ 472 million portfolio investment at the KSE in the past eight months, around 77 percent belongs to US investors.

President Bush was likely to sign the much-awaited Bilateral Investment Treaty between Pakistan and US, which is important. In an interview last week, President Bush said the treaty was to provide encouragement to FDI in Pakistan.

Analyst said this was the maximum point decline in a single day at the KSE. Prominent contributors included selling by foreign portfolio investors, the generally overvalued nature of stocks and most importantly disappointment in the context of the US president’s visit to Pakistan. In particular, the stability of the domestic political situation emerged as a major concern.

The analyst said after Monday’s steep decline, investor confidence w1as at its lowest. He said in the short term the market was likely to descend considerably with minimum likelihood of the index being able to hold the 10,000 points level.

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