Pakistan to remove its market floor
Sunday, 14 December 2008
Farhan Bokhari in Islamabad
PAKISTAN'S stock market regulator has ordered the managements of the country's three stock exchanges to remove an artificial floor introduced in August this year to prevent share prices from tumbling further after many months of declines.
However, the floor became controversial amid charges from angry investors who argued this artificial mechanism effectively brought activity to a virtual halt as daily volumes of shares traded fell to an all-time low.
The order requires the Karachi, Lahore and Islamabad stock markets to end the limit from today (Monday) December 14, 2008, in spite of many brokers and investors opposing such a move on the grounds it would see a flight of capital.
Karachi's KSE-100 index, which now hovers just above the 9,144 level of the artificial floor, is almost 40 per cent below its life-time high achieved last year.
"The stock market had virtually become frozen," an official at the Securities and Exchange Commission (SEC) of Pakistan, the market regulator, said last night.
A leading stock broker warned removing the floor could lead to large losses for equity investors. "I would not be surprised if the stock market's index drops by 20 or 40 per cent eventually. That would be a bloodbath".
Muhammad Suhail, director at Karachi's Jehangir Siddiqui investment management company, said Karachi would return to stability "by the second quarter of 2009".
A senior finance ministry official blamed the weak stock market sentiment partially on the failure of the government to support the creation of a market stabilisation fund.
PAKISTAN'S stock market regulator has ordered the managements of the country's three stock exchanges to remove an artificial floor introduced in August this year to prevent share prices from tumbling further after many months of declines.
However, the floor became controversial amid charges from angry investors who argued this artificial mechanism effectively brought activity to a virtual halt as daily volumes of shares traded fell to an all-time low.
The order requires the Karachi, Lahore and Islamabad stock markets to end the limit from today (Monday) December 14, 2008, in spite of many brokers and investors opposing such a move on the grounds it would see a flight of capital.
Karachi's KSE-100 index, which now hovers just above the 9,144 level of the artificial floor, is almost 40 per cent below its life-time high achieved last year.
"The stock market had virtually become frozen," an official at the Securities and Exchange Commission (SEC) of Pakistan, the market regulator, said last night.
A leading stock broker warned removing the floor could lead to large losses for equity investors. "I would not be surprised if the stock market's index drops by 20 or 40 per cent eventually. That would be a bloodbath".
Muhammad Suhail, director at Karachi's Jehangir Siddiqui investment management company, said Karachi would return to stability "by the second quarter of 2009".
A senior finance ministry official blamed the weak stock market sentiment partially on the failure of the government to support the creation of a market stabilisation fund.