Pakistan Stock Markets Shrug Off Election Jitters

Stock Investors Bullish
As the world holds its breath for the February 18 voting in Pakistan, the stocks continue to surge with major Pakistani companies posting record profits. The KSE-100 rose for the fourth day closing up 70 points at 14,353. Pakistan State Oil Company Limited, the largest state owned oil marketing company in the country has achieved a record profit before tax of Rs 8.2 billion and profit after tax of Rs 5.5 billion in the first half of financial year 2007-08 with 13% increase in sales volume. Shares buyback by a number of listed companies including Ahmad Spinning Mills, Sarhad Cigarettes and Noon Textiles inspires confidence that the share prices are likely to continue the uptrend.

External Debt Rises
Pakistan's external debt rose by US$2.4b to reach a new high of US$42.9 during July-Dec 2007. As a percentage of GDP, however, it declined to 26% from 27% at the end of FY2007 ending June 2007. The total debt-to-GDP ratio is 57%, helping Pakistan maintain its Moody's and S&P credit ratings of B1 and B+, the same as Indonesia's but a notch below India's debt rating of BBB. Pakistan current debt rating is about 5 levels below the top investment grade of AAA but it is the best Pakistan has ever achieved.

Post-Election Scenarios
"Formation of a stable democratic government will be the most important event to consider," said Mark Mobius, executive chairman at Templeton Asset Management Ltd talking with Reuters. "Investors are still keen on Pakistan and there has been no sharp withdrawal of capital from Pakistan despite the recent events as well as the financial turmoil across the world," Mobius said. "In fact, markets in Pakistan have been fairly resilient."
I think investor confidence, company profits, and debt ratings can change dramatically based on the realities on the ground. If the February elections go well, and there's little or no violence in the aftermath, then we can hope for a continuation of the current positive trends. Whoever wins will need to reassure investors on the continuity of economic policies to retain investor interest in Pakistan. If there is post-election violence and it gets out of hand and there is prolonged uncertainty as to the new government, then all bets are off.

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