Tuesday, January 22, 2008

Karachi Stocks Hold Up Well As World Markets Plunge

As the world stock markets plunged dramatically on fears of US recession dragging down the world economy, the stock prices in Karachi did well on Tue, the 22nd of January, 2008. While shares on Mumbai, Shanghai, Tokyo and other world stock markets lost 5% or more of their value, the KSE-100 lost only 24 points to close at 13,850 points and KSE-30 gained 18 points closing at 16,505. This remarkable resilience at KSE is a testament to the investor confidence that Pakistani economy has great potential offering very good companies at significant discount to valuations of similar companies elsewhere. Various analysts estimate that, in spite of 40 percent increase in 2007, Pakistani shares still sell for about half the P/E ratios of shares in India and China.

Following the decision by the US Federal Reserve to cut interest rate by an unexpected 0.75%, it is likely that the world markets will stabilize shortly. However, the Asian markets have become extremely expensive with Pakistan's KSE being one of the few exceptions. This is likely to spur greater international investment in Karachi. The one wild card that remains is the Pakistani elections in February and what happens in its aftermath. If Musharraf handles it well, both the KSE and the Pakistani economy will be the beneficiaries. Beyond that, if some semblance of stability continues, it would only be an additional bonus driving up the economy and the stock prices higher, bringing new jobs, expanding the size of the middle class with its spending power, and improving the living standards for all Pakistanis.

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