Government u-turn drives Karachi lower

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Shares in Pakistan tumbled 4.43 per cent on Monday, their biggest fall since May 23, as authorities abandoned some of the stabilising measures they adopted last month.

Foreign investors sold shares heavily after the authorities reverted to a 5 per cent daily limit on price rises and falls.

The Karachi Stock Exchange 100 index closed near the day’s lows at 11,177.31, its 12th consecutive daily decline, as 77 of the benchmark’s members moved into reverse. It ended barely above the 15-month low of 11,134.85 hit on 23 June, the day before the authorities introduced a package of changes to prevent the market falling further.

Those measures included a Rp30bn ($700m) stabilisation fund, a one-month ban on short-selling, and limiting the maximum daily fall in a company’s shares to 1 per cent from 5 per cent, which has now been reversed.

The maximum price rise was increased to 10 per cent from 5 per cent, and has now reverted to 5 per cent.

The volumes of shares traded plummeted to 10-year lows after the measures were adopted.

The number traded fell to a low of just 4.4m a day on July 4. This compared to a high this year of 306.6m on April 4.

Pakistan was one of the best performing stock markets in Asia last year. It rose 40 per cent in spite of mounting social and political problems that culminated in the assassination of Benazhir Bhutto in December.

But after hitting a peak of 15,739.25 during trading on 21 April, the KSE-100 has fallen by 29 per cent as investors have fretted about political instability, inflation and widening budget and current account deficits.

Analysts said yesterday’s fall was largely triggered by the country’s prevailing political and economic uncertainty caused by weeks of growing uncertainty.

This follows the election of a new government in February led by political parties opposed to US backed president Pervez Musharraf.

The new government however faces rapidly mounting criticism for failing to set a new direction.

“Investors right now do not see clarity for the future. This is fundamentally why the market is losing confidence rapidly,” said Shuja Rizvi, head of the brokerage operations at Karachi’s Capital One Securities brokerage company.

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