Foreign Investors Might Prop Up Pakistan Shares After a Tumble

MANY Pakistani investors still feel rattled after last month's ``Black Sunday,'' when share prices on the Karachi Stock Exchange (KSE) - the country's largest stock market - fell sharply by 129 points, or almost 5.5 percent on a single day.

The fall came after three months of impressive gains. In all, the market fell by a total of 248 points, or almost 10 percent over three consecutive days.

Brokers and market analysts consider the sudden drop more of a ``technical correction'' than an end to the boom, which has raised the crucial KSE-100 market index by more than 75 percent, or almost 1,000 points since last October.

Pakistan's expectation of political stability under its new prime minister, Benazir Bhutto, prompted the gains. Many investors are convinced that last year's turmoil in the lead-up to national elections is finally over. The government welcomes the market's rise as a sign of growing confidence in the country's economic and political environment.

Forecasts of higher profitability in some sectors, such as banking, finance, chemicals, and pharmaceuticals, have given a boost to the index. More importantly, signs of interest from foreign buyers have encouraged the bullish sentiment. Among the most recent signs of foreign interest is Morgan Stanley's recently launched $60 million Pakistan fund, which has been oversubscribed by more than three times, attracting $187-million worth of subcriptions.

Although foreign investors are estimated to hold stocks worth $700 million, or less than 7 percent of the total market's capitalization, their presence has added to confidence in the market and has helped attract domestic investors. Rising share prices across much of Asia before some setbacks in recent weeks have also been beneficial.

``Generally in the United States and Europe, the returns are so bad, they've got to look elsewhere,'' says Majid Daud, an analyst at the Credit Lyonnais office in Karachi, explaining the substantially higher profits available in Pakistan compared with the West. This is the main draw for foreign buyers. ``There are mountains of money looking to go somewhere,'' he says, adding that deposits from various Western sources are looking for investment outlets.

Other analysts say that Pakistan's three-year-old program of economic deregulation is finally paying off because there are virtually no restrictions on foreign buyers.