Woes of Small Investors in Karachi Stock Exchange
By Dr. Hassan Isfahani • Jul 19th, 2008 • Category: Misc, Worth A Second Look • 8 CommentsStock exchanges are the reflection of the economy of any country. More efficient the stock markets, the more efficient the economy of a country is. Though government’s direct role in the stock exchanges is not approved, but it’s the sole responsible for the plight of the economy, which directly affects the stock markets.
The importance of stock markets cannot be stressed enough in in mobilizing savings, allocating capital, exerting corporate control, and easing risk management. The existence of a stable long-run relationship between stock market capitalization, bank credit and growth rate of real GDP is interwoven seamlessly. The growth rate of real GDP is also found to be cointegrated with financial depth, which is shown by the solidness and robustness of a stock market.
Due to the crisis fever in Pakistan, the health of stock market is deteriorating very swiftly, and the inability and inactivity of the government in this regard is also having many fateful consequences on the stock markets. Double-digit inflation rate and a rapidly falling rupee is sucking the last drops of life out of the small and medium time investors, while the big players are vulturing in the corner.
Though, the capital hub of Pakistan, the Karachi Stock Exchange has never been an ideal place for bullish trends, but since this April, it has seen worst of time, and now the situation has gone so much desperate that the small time investors are creating mayhem in the KSE premises and they are clashing with rangers and police, pelting stones and destroying the furniture and equipment.
The tumbling Karachi Stock Market is also having a very severe effect on the Lahore and Islamabad stock exchanges. The recent outburst happened among the small time investors, when KSE-100 index drift sharply downwards for 16 trading sessions in a row. The massive 400 point decline adds to the 5.200 point losses suffered over the past four months. Since the aggregate foreign portfolio investment stands at $850 mn (excluding those in GRDs), the outflow was a substantial 20 per cent of the overseas equity investment. Just with in a week, market capitalistion of the insurance and banking sectors declined by 6.5 per cent and 5.2 per cent respectively.
There still is no urgency on the part of the government, and their incompetency and inability and lack of interest is a nadir example of mismanagement and state apathy.
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On March 25, Syed Makhdoom Yousuf Raza Gilani took the oath of office. That day the value of all commercial entities listed on the Karachi Stock Exchange (KSE) stood at Rs4.6 trillion. In exactly 100 days, the value of all commercial entities listed on the KSE went down to Rs3.6 trillion. Pakistan is poorer by a trillion rupees; that’s like becoming poorer by Rs10 billion a day every day for the past 100 days.
Sir,
Who told you Karachi stock index reflects the strength of Pakistan economy as also Bombay stokcs represent the strength of Indian economy. No sir.It only reflects the strength of the 23 families who control India and also the seven who control Pakistan MARKET economy. With almost 70% economy in the hands of uncontolled farmers and small traders, the stocks only affects the pant wearing class.
Americans are ofcourse affected by stocks but not India and Pakistan.The foreign direct investments have dried up due to the very reason it came in.PROFIT. It is sensing profit in other markets.
Mr Johann is right. Stock exchange are never been used as economy calculator. Economic don’t believe in baseless things. Increase or decrease in index results nothing for companies or countries. it only shows some sort of liquidity in country. Our stock exchanges were showing growth in last 5 years but have you ever seen any effect on country in return. It is just like “heating Up economy concept”.
Stock market is not the barometer for the economy. Financial profit is different from economic profit. Exchange of assets is not an economic activity.
This kind of thinking is prevalent in Pakistan for the reason beyond me. Our economy is not at par with economies which came into being in similar years.
Banks instead of channeling expats’ income from abroad decided to finance consumer goods, now most people are carrying debts and paying interest to banks instead of investing the extra income in businesses.
Americans are ofcourse affected by stocks but not India and Pakistan.The foreign direct investments have dried up due to the very reason it came in.PROFIT. It is sensing profit in other markets.
Pakistan is poorer by a trillion rupees; that’s like becoming poorer by Rs10 billion a day every day for the past 100 days
That day the value of all commercial entities listed on the Karachi Stock Exchange (KSE) stood at Rs4.6 trillion. In exactly 100 days,
Our economy is not at par with economies which came into being in similar years.