Pakistan stocks rise after exchange sets price floor August 28, 2008|Polya Lesova & Chris Oliver, MarketWatch

NEW YORK (MarketWatch) -- Pakistani equities climbed Thursday, breaking a long losing streak after the Karachi Stock Exchange imposed an emergency floor under share prices aimed at stemming the recent precipitous market decline. Karachi's KSE-100 benchmark stock index gained 0.6%, or 58.85 points, to end at 9,203 points on Thursday. Thursday's gains came after regulators introduced market-stabilization measures late Wednesday, when the KSE-100 index ended down 3% at 9,144 points. Read more. The board of directors of the KSE decided that individual security prices will not be allowed to trade below their closing levels as of Wednesday, while the 5% upper and lower trading limits will remain in place. The new rules came into effect Thursday and will be in place until further notice. "The continuous sharp decline in share prices can have implications for the wider financial system," the board of directors of the KSE said in a statement Wednesday. The KSE board also said they would call upon the finance ministry and the State Bank of Pakistan to "to develop medium-term measures for achieving stability in the capital market." Fresh attempt to stabilize market The KSE-100 stock index has fallen 34.6% this year, as investor sentiment was dented by political uncertainty and a long list of economic troubles, including skyrocketing inflation and a soaring deficit. Since April 18, when the KSE-100 index soared to a record high of 15,676 points, it has tumbled 41.3%. In dollar terms, the index has fallen 51% from its April peak. The market capitalization of the Karachi Stock Exchange stood at $37.96 billion at the end of trading Thursday, up 0.7% from the previous day, according to data from Karachi-based JS Global Capital Ltd. "One thing that is badly missing in Pakistan is investor confidence." JS Global However, year-to-date, Karachi's market capitalization has tumbled 33.5%. "One thing that is badly missing in Pakistan is investor confidence," said analysts at JS Global in a research report on Thursday. "The global financial crunch, rising commodity prices and [the] local political situation has affected the macroeconomic picture," they said. "And that is reflected in the stock, money and currency markets."

they get furious. while regulators in the United States are moving to limit short selling and speculation in the oil market. They also allowed short selling and reiterated their intention to launch an Equity Market Opportunity Fund. market stabilization measures were put in place. adding that any government measures to prop up the market usually don't work. In Pakistan on Thursday. "People who don't understand markets can go down. regulators reversed the upper and lower circuit breaker to 5%. banning short selling and setting up a market stabilization fund. has fallen about 16% in the last four months. Regulators in China have signaled their intention to stabilize the local market. MarketWatch NEW YORK (MarketWatch) -. declining for a 15th session in a row. on July 11. Wednesday's move is the second time this summer when Pakistani regulators have stepped in to curb slides in the market.Popular anger over tumbling equity prices erupted in Pakistan on Thursday. It is down 27. underscoring the difficulties regulators face in attempting to prop up falling markets as turbulence in many of the world's financial markets continues unabated.6% to end at 10. which became the worst performer among global markets this week. leading to further sharp declines in shares. and demanded a temporary closure of the market to curb further drops in share prices. Then." he said. India has suspended futures trading in several commodities. the rupee. head of the international equity team at Federated Investors. including trading curbs. Popular anger over tumbling equity prices erupted on July 17. In late June. That decision to reverse stabilization measures eroded investor sentiment. more than 200 protestors attacked the Karachi Stock Exchange.Pakistan's currency. the BBC reported. . By Polya Lesova.212 points. when more than 200 protestors attacked the Karachi Stock Exchange and demanded a temporary closure of the market to curb further drops in share prices. Read more. The Karachi's KSE-100 benchmark stock index fell 2. The turmoil in Pakistan comes at a time when several emerging markets are considering market stabilization measures. the country's main equity market. "You've seen this before and you'll see it again when a hot stock market has sucked in all the unsophisticated retail money." said Reiner Triltsch. Smaller protests took place in Islamabad and Lahore.5% year-to-date.

676 points. shares rallied nearly 9%. Local investors. since April 18. had a great ride until late April this year." Dzierwa said. The KSE-100 was down 17% year-to-date on Friday. In 2007. have learned the hard way how quickly fortunes can change in the stock market." said Jack Dzierwa. despite the country's precarious political situation. also led to a steep decline in trading volume on the Karachi exchange."In the long run. The Karachi exchange." Triltsch said. The day the measures were introduced. the reversal of most of those rules was a big negative. if the fundamentals are not positive. Bykere . if growth is slowing. See full story. The risk is that if governments create this kind of policy uncertainty. Global Investors. an analyst at RGE Monitor. Regulators intervene "Any excessive speculation is not conducive to the normal functioning of the market." she said. Last Friday. This latest decision eroded investor sentiment." said Arpitha Bykere. "You don't want to be over-regulating. In the first few months of 2008. if liquidity is going away. reduced the lower trading curb to 1% from 5% previously and increased the upper trading curb to 10% from 5% previously. the KSE-100 has tumbled 35%. The Pakistani market's precipitous decline prompted regulators to put in place market stabilization measures in late June. They also allowed short selling and reiterated their intention to launch an Equity Market Opportunity Fund. However. Pakistani shares. The new rules. the KSE-100 index soared 41%. "The relaxation of the trading limit has created great uncertainty among investors. regulators reversed the upper and lower circuit breaker to 5% effective July 14. [government intervention] will not affect the eventual valuation of the market unless they just shut it down. but where do you draw the line? No one wants to have the market completely collapse.S. for example.23% at U. who dominate Pakistan's equity market. for example. which included trading curbs. explaining that while the initial rules were positive. the KSE-100 was the best performer among major emerging markets indexes. and then you introduce the specter of increasing interest rates. which would make it very hard to finance the country's soaring deficits. meaning that it has fallen 10% since Monday. foreign investors will withdraw money from the country. however. when the index soared to a record high of 15. banning short selling and setting up a market stabilization fund. global strategist and co-manager of the Global MegaTrends Fund MEGAX +0. "Government measures to control stock price volatility and the slump proved counterproductive in this case.

said. Pakistan is also struggling with inflation. which accelerated to a three-decade high of more than 21% in June. "Looking at recent trend of stock markets around the world. "Governments are bound to undertake such measures and it's highly understandable in this kind of market turmoil." Bykere said. we've seen extreme stock market volatility." Polya Lesova is a MarketWatch reporter based in New York. .

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