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Showing posts from March, 2008

Gillani Dealing With Wheat and Energy Crises

With global commodity prices and inflation hitting new highs, Pakistan and other emerging economies are faced with serious challenges. The rising inflation of staples such as wheat has already claimed Pakistan's former ruling coalition as a victim. Many other developing countries' governments are likely to fall as well unless these challenges are addressed effectively.

Knowing the importance of wheat for Pakistanis, the government of Prime Minister Syed Yousaf Raza Gillani has begun to take steps to alleviate the wheat crisis. The first steps, announced yesterday by Ministry of Food and Agriculture, deal with providing incentives to farmers to grow more wheat. The price of 40Kg of wheat has been raised by more than 20 percent to Rs. 625.00 (US$9.90) from Rs 510.00 (US$7.90). The government plans to build a 5-million-tonne strategic reserve from the 2007/08 crop, but farmers had rejected the procurement price of 510 rupees per 40 kg as below domestic and international market lev…

Karachi: The Heart of Pakistan Economy

The business community in Karachi welcomed the support of the Muttahida Qaumi Movement for the new prime minister Mr. Gillani. Good relations between Pakistan People’s Party and the MQM are considered vital for the business community in Pakistan.

According to Pakistan's Dawn newspaper, Shamim A. Shamsi, president of the Karachi Chamber of Commerce and Industry, urged the new team to revisit economic policy issues and resolve them for the good of the people.

“It was wise of the PPP to take the MQM on board as it is an integral part of the current reality of the province. The decision bodes well for Karachi and therefore the country,” Majyd Aziz, a senior leader of the business community, said.

Peace in Karachi is considered crucial for Pakistan's economic growth and prosperity. According to Wikipedia, Karachi is the financial capital of Pakistan and the biggest port city; it accounts for the lion's share of GDP and revenue. It generates over 65% of the total national revenue (…

India's Global Shopping Spree

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India's Tata Motors Ltd has agreed to acquire Jaguar and Land Rover, the well known international luxury brand names. The price tag of $2.3 billion represents a real bargain at a fraction of what Ford paid to buy these brands a few years ago. The Wall Street Journal reports that the deal, expected to be made final with regulators sometime during the second quarter, capped off months of discussions between the parties and much speculation among investors about the fate of the brands in the sale. The process began last June when the U.S. auto maker hired Goldman Sachs Group and Morgan Stanley to run an auction of the two units, part of its Premier Automotive Group.




While this high-profile deal by an Indian company is making headlines around the world, the data shows that Indian companies have been on a global shopping spree for a several years. The number of Indian companies that are investing abroad has been steadily growing ever since the Tata Group successfully acquired UK's T…

Karachi's Stock Exchange Defies Pessimists

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Volatile Pakistan does not, at first glance, seem to be attractive for those looking to invest money in a stock market. But the Karachi exchange has gained a reputation as one of the world's top performers. In recent weeks it has again been setting new highs for share prices. VOA Correspondent Steve Herman in Karachi visited the exchange which has been defying the global trend and the direction of Pakistan's economy.

Most investors who follow the U.S. Dow Jones index, Japan's Nikkei or London's FTSE ("Footsie), likely pay little heed to the KSE 100. But those select issues on the Karachi Stock Exchange have been consistently outperforming those of the better-known bourses.

There are 200 member seats on the floor of the Karachi exchange, Pakistan's oldest and biggest stock market. Traders execute orders on computers terminals below a huge electronic board that would not be out of place on Wall Street.

The Karachi market has 650 listed companies with market capital…

Rising Migrant Remittances Helping the Developing World

Pakistan reported over 20 per cent growth in remittances from overseas Pakistanis during the first 8 months of fiscal 2007-8. The country ranked number 12 in the world with over $4b in this period. High oil prices and strong economies in the oil-exporting Middle Eastern countries are contributing to strong demand for migrant laborers.

According to a report titled "Remittance Trends 2007" by the World Bank , the flow of remittance globally continues with a robust growth with developing countries taking the lead as major recipients. The growth of remittances to developing countries remains robust because of strong growth in Europe, Middle East and Asia.

Total global remittances in 2007 were estimated by the World Bank to be $318bn of which $240bn went to people in developing countries.

"In many developing countries, remittances provide a life-line for the poor," the World Bank's senior economist Dilip Ratha told the BBC. "They are often an essential source of f…

War on Inflation and Energy Shortages: Substitution Strategy

As South Asians suffer greatly from the twin crises of hyper inflation and prolonged, daily power cuts, the life for them is getting more and more difficult every day. The traditional approaches to solve these problems such as increasing governmental subsidies for food and fuel and building more conventional fossil-fuel based generating capacity are not likely to work cost-effectively and sustain ably in the long run. It is time for South Asians to explore creative options to find workable, long-lasting solutions.

Economists often talk about the impact of supply and demand and consumer behavior on inflation. In fact, the consumer price index calculations in the US rely partly on consumers substituting cheaper alternatives for commodities experiencing higher inflation. For example, it is assumed that when the price of steak goes up, consumers start eating chicken instead. The often-criticized substitution process rationalizes this method to eliminate inflation from the US Bureau of Labo…

Pakistan To Join International Debt Benchmark iTRAXX

Pakistan, along with PTT Aromatics & Refining Pcl, a unit of Thailand's largest energy company, is expected to join Markit's iTraxx Asia ex-Japan Index of credit-default swaps, after demand to trade on the contracts rose, reports Bloomberg.com. Pakistan, whose credit-default swaps have more than doubled since October because of growing political uncertainty and tension between rival parties, is slated to join the benchmark and the 20- member sub-index for non investment-grade governments and companies.

Credit-default swaps are an indicator of the cost of bond insurance that varies with the risk of bond default. Credit default swaps are usually bought by bond holders from credit insurance companies like Ambac, FGIC, and MBIA. These insurers reimburse bondholders in case the bond issuing companies or governments default. A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. This is the first …

Karachi Stock Market Boom Continues

A Tale of Two Pakistans:

A little more than six years ago, immediately after the Sept. 11 attacks on U.S. cities, few sane investment advisers would have recommended Pakistani stocks.

They should have. Their clients could have made a fortune.

Since 2001, the nuclear-armed South Asian country, blamed for spawning generations of Islamic militants and threatening global security, has been making millionaires like newly minted coins.

As Western governments have fretted about Pakistan's nuclear weapons falling into the hands of militants, the Karachi Stock Exchange's main share index has risen more than 10-fold.

And it is not just that Karachi is a thinly traded market, able to be dragged skyward at time by speculators. Profits have taken off as well.

Even last month's assassination of opposition leader Benazir Bhutto, and the brief but terrifying tornado of violence it unleashed, failed to make much more than a dent in the market.

Businessmen are more worried than brokers, but all ag…

Pakistan Stocks Continue to Defy Gravity

As growing concerns about the state of the US economy took their toll on share prices in Asia, the Karachi stock market continued its rally and KSE-100 touched a new peak of 15,085.18 points level during last week ending on March 8, 2008.

"The signs of formation of coalition government of PPP, PML (N) and ANP have revived investors' confidence and they have once again started investment in the share market, which pushed the index to new high level," analysts said, according to The Business Recorder, Pakistan's Financial Daily.
The KSE-30 index went up by 239.90 points, to close at 18,607.19 points level from 18,367.29 points.

Market capitalization jumped to a new peak of Rs 4.661 trillion from Rs 4.618 trillion, an increase of Rs 42.465 billion. Average daily trading volume of ready market stood at 285 million shares, while overall some 1.294 billion shares were traded during the week.

On Friday, the Indian market closed in the deep negative territory with the BSE Sense…

Rich-Poor Gap: India's Newly-Minted Billionaires

The booming Bombay stock market in 2007 and the benefits of globalization have seen India's billionaires list swell to 40 on the Forbes Billionaires List. The Indian billionaires combined wealth has more than doubled from $170 billion to $351 billion in 2007. While Bill Gates has slipped to number three spot from number one, the number 4, 5, 6 and 8 spots in the top 10 are now occupied by Lakshmi Mittal, Mukesh Ambani, Anil Ambani and KP Singh from India.

The news of the newly-minted Indian billionaires is bringing sharper focus on the growing rich-poor gap in India. The Times of India reports Communist Party leader Sitaram Yechury claiming that on the one hand, 36 Indian billionaires constituted 25% of India’s GDP while on the other, 70% of Indians had to do with Rs 20 a day. "A farmer commits suicide every 30 minutes. The gap between the two Indias is widening," he said.

The growing wealth gap is also a big concern in other BRIC countries such as China and Russia. Fully…

Merrill Lynch Launches Fund Investing In Pakistan

As individual and institutional investors scour the globe looking for higher returns on their investments, they are discovering markets in emerging economies outside the well known BRIC (Brazil, Russia, India and China) countries. Karachi Stock Exchange in Pakistan represents such a discovery. Four Pakistani companies are now in a new index fund called the Frontier Index fund launched by Merrill Lynch today. To be included in the index, companies must have a market capitalization of at least U.S. $500 million, a three-month average daily turnover of at least U.S. $750,000 and a foreign ownership limit above 15 percent. The composition of the index will be reviewed twice a year, in February and August.

Stocks listed in the Middle East make up 50.0 percent of the new index, followed by a 22.6 percent share for Asia, 14.1 percent for Europe and 13.3 percent for Africa. The top three countries represented in the index are the UAE (23.1 percent), Kuwait (18.1 percent) and Pakistan (13.6 per…

Pakistan's Success Story: Foreign Direct Investment

Talking about foreign direct investment (FDI) in emerging economies, former US Federal Reserve Chief Alan Greenspan says: “But clearly the Licence Raj (in India) has discouraged foreign direct investment. India received $7 billion in FDI in 2005, a sum dwarfed by China’s $72 billion. India’s cumulative stock of FDI at 6 per cent of GDP at the end of 2005 compares with 9 per cent for Pakistan, 14 per cent for China, and 61 per cent for Vietnam. The reason FDI has lagged badly in India is perhaps no better illustrated than by India’s unwillingness to fully embrace market forces. That is all too evident in India’s often statist response to economic problems. Faced with rising food inflation in early 2007, the response was not to allow rising prices to prompt an increase in supply, but to ban wheat exports for the rest of the year and suspend futures trading to ‘curb speculation’ — the very market forces that the Indian economy needs to break the stranglehold of bureaucracy.” (p. 322 of &…

Is Euro Ready To Replace US Dollar As Reserve Currency?

There are mounting global concerns about sharp decline in the value of US dollar against the euro and other major world currencies. Not only has it fueled inflation with higher prices of basic commodities such as food grains, oil and metals but it has also diminished the value of the reserves held in dollars by the vast majority of central banks around the world. These issues are giving to rise to a discussion of how long can the US dollar remain as the currency of choice for central bankers. To understand this discussion, let's look at the history of reserve currencies in the past and the current situation with global trade.

When the 20th century began, the U.S. was already the world's biggest economy, but the British pound still accounted for nearly two-thirds of official foreign-exchange reserves held by the world's central banks. The dollar didn't become the dominant currency until after World War II. Even then, some commodities still traded in pounds: The London su…