Financial Year 2007-08: Money market witnessed capital exodus

[Naveed Yaseen]

* Portfolio investment turned negative standing at $251.022 million
By Tanveer Ahmed
KARACHI: Country’s capital market saw huge capital flight during the financial year 2007-08, triggered by political instability and worst law and order situation, which marred the past year.

The portfolio investment turned negative by standing at $251.022 million (Rs 17.069 billion) during July-June period of last financial year, the figures of National Clearing Company of Pakistan (NCCPL) indicate.

Financial year 2007-08 witnessed worst economic and law and order scenario, casting dark shadows on the stock market as well, which witnessed historical ups and downs by remaining volatile throughout the year.

Though, the financial year began amidst political instability caused by reference against Chief Justice with wide-spread agitation and massive protests against the then government, however the more scary scene for the investors emerged in the aftermath of the assassination of Benazir Bhutto on December 27, 2007.

The break-up of portfolio investment shows that its trend was not discouraging in the first half of the fiscal, but the second half (January to June 2007-08) was catastrophic as far as the investment in stock market is concerned with the outflow reaching to new heights.

“The growth phase that started from 2001 to 2002 appears to be evaporating at the moment because of number of issues on political and economic sides, on which the new government is still directionless,” analyst Faisal Shaji noted while not expecting rosy picture on this front in the immediate future.

Since the new democratic government miserably failed to come up with a sound economic policy, the investor’s sentiments were also badly hurt by the rumours and speculations about measures regarding the levying of capital gains tax before the budget.

Since April 18, when Karachi Stock Market (KSE) rose to historical heights, till the announcement of the budget, market was abound with rumours that were disastrous for the investors particularly foreign ones, who offloaded their stocks and kept themselves at bay from the stock market.

Analysts predicted that emerging economic situation is bound to impact the stock market, ultimately causing concerns among the foreign investors. “In an era of high inflation, further interest rate hike could not be ruled out, which would certainly hit the economic growth as well as growth prospects of listed companies”, Shaji pointed out.

People are now recalling the events that followed the nuclear blasts in 1998, when major exodus of foreign investment was witnessed. The current situation is no more different from that one, which pains a worrying picture for the much cautious foreign investors.

http://www.dailytimes.com.pk/default.asp...008_pg5_10