Retail Investors Protest Falling Stocks in Karachi

The investor confidence reached new lows when hundreds of irate investors took to the streets in Karachi today. A number of windows were broken and at least two people injured, Reuters news agency reported. They were protesting continuing slide in share prices in Karachi for the 14th consecutive day, eroding about 14% of capital since Monday, reaching a new 18-month low of 10,058.37. The KSE-100 is now down 36% from its peak of 15739.25 earlier this year. Fall of 20% or greater in major indices is considered a bear market.

Earlier in June, there was a brief respite for investors when the authorities imposed a temporary ban on short selling and tightened the circuit breaker lower limit to 1% and increased upper limit to 10%. But, as soon as the trading range was revised to plus or minus 5% last Friday, many investors took advantage of it and sold off their holdings, putting further downward pressure on share prices.

"The measures taken on Friday proved to be an exit strategy for foreign investors," Asad Iqbal, managing director at Ismail Iqbal Securities Ltd. told Business Recorder newspaper in Karachi.

Pakistan's State Bank has recently raised interest rates from 10% to 12.5% and cut 2007-8 growth from 7.2% to 5.8%. This forecast comes on the heels of dire talk of economic "meltdown" by the new leadership that is facing serious political instability amid growing differences in the PPP-PML(N) coalition government. The ongoing unease with new leadership is continuing to accelerate loss of confidence in Pakistan's economy by businesses, investors and consumers. The rupee is continuing its slide which has seen it lose 16.9% of its value against the dollar so far this year.

With the dramatic rise in international commodity prices, the food and fuel subsidies have contributed to Pakistan's rising budget deficit, which the central bank said would reach 6.5 percent to 7 percent. The deficit was just 4.3 percent in fiscal 2007. With imports rising faster than exports, the central bank said Pakistan's current account deficit will rise between 7.3 percent and 7.8 percent - a record high.

While it is true that at least part of the inflation in Pakistan is imported from global markets, it is important for the Pakistani leadership not to use it as an excuse for inaction on the economic front. Faced with international turmoil, it becomes even more important to assert leadership in economic matters to keep the national economy afloat and able to recover quickly in the future. The first step toward fixing the current mess is to put credible economic leadership in charge and stop the erosion in business, consumer and investor confidence.

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