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The 200 brokers and the many more investors of the Karachi stock exchange heaved a sigh of relief after the installation of a new government in Pakistan last month completed a complex political transition without large scale fallout for the economy.
The completion of the transition has provided an opportunity to look at the market's future prospects, ranging from the improving outlook for some of the most important sectors to so called "demutualisation", offering up to 40 per cent of the KSE for sale to a foreign stock exchange.
The demutualisation will finally change the KSE from being a closed club owned exclusively by its members to an exchange where an outside player will be able to influence its development.
Political trends are helping to consolidate the KSE's future.
Earlier this month Asif Ali Zardari, co-chairman of the Pakistan People's Party the senior partner in the new ruling coalition, made a historic visit to the headquarters of the Muhajir Qaumi Movement, Karachi's largest political party, in a move seen as patching up differences between the two sides. This symbolic step is widely seen as assuring peace in Karachi where a rift between the MQM and the PPP in the 1990s triggered recurrent violence.
Meanwhile, President Pervez Musharraf, the pro-US leader who has ruled the country for eight years and overseen a broad economic recovery, is looking increasingly beleaguered. Parliamentary elections in February resulted in heavy defeat for politicians who supported him.
But surprisingly, the success of anti-Musharraf politicians, including some who have vowed to force him out of power, is of little immediate consequence to the KSE's future. This apparent disconnect between the president's political future and the outlook for the KSE is a trend which analysts say is promising.
This assessment is in sharp contrast to the mood not too long ago when analysts warned that Musharraf's political weakening, let alone his downfall, could instantly prompt Karachi's headline index, the KSE-100, to crash.
Booster dose
During his tenure as the country's ruler, Musharraf has been helped by his alliance with the US in the so-called "war on terror". During the six years since Pakistan became a close US ally, the country has been given $10 billion (Dh36.78 billion) of assistance by the US, boosting market sentiment.
A sharp increase in remittances from Pakistanis living overseas has also helped build up foreign currency reserves to the equivalent of at least five months of imports, compared to just four to five weeks during the 1990s.
The turnround in the level of reserves helped support the Pakistani rupee against the US dollar, although it has slipped 3-4 per cent in the past six months.
But senior KSE officials claim that the Karachi market has learnt to sustain itself during difficult times because investors are ignoring political trends and instead focusing on profitable companies in sectors such as cement, energy and banks.
"Investors have learned to ignore politics because they are looking primarily at possibilities for attractive returns. There has simply has been a decoupling of politics from the corporate sector," says Adnan Afridi, managing director of the KSE.
Officials such as Afridi are hoping that a presidential decree allowing the KSE to demutualise will soon see the light of day.
The demutualisation will allow the KSE's 200 members to sell 40 per cent of the stock to a foreign buyer while another 20 per cent will be offered to the public at a later stage.
The unknown factor in the political process is that instead of a simple decree signed by Musharraf, the new government may insist on taking the matter to the new parliament for discussion and debate before putting it to a parliamentary vote.
Bidding
The appointment of Ishaq Dar as the new finance minister has encouraged many brokers to believe that the finance ministry, which is likely to have a powerful role in the new government, will back the demutualisation effort. Dar is a former commerce and finance minister with a reputation of having close ties to business leaders.
Recent months have seen reports that the Dubai stock exchange will be interested in bidding for 40 per cent of its Karachi peer. "If Dubai steps in to the process, that will be hugely welcomed by brokers in Karachi, many of whom already have business interests and contacts in Dubai," says one leading Karachi broker.
Afridi adds: "Our proposed demutualisation ordinance says up to 40 per cent of the stock will be sold to strategic investors who are defined as either global stock exchanges or financial institutions related to capital markets. Most major stock exchanges have either shown interest verbally or in writing that when the process starts they should be informed in writing. Dubai is one of those which has expressed an interest in writing."
Afridi says the new government would have a role in setting the pace for the KSE if it was to consider privatising public sector companies such as banks and energy companies, which are popular among investors.
"The experience has been that any initial public offering which has come to the market has been oversubscribed by five, six or seven times. That shows there is still very strong demand from investors," concludes Mr Afridi.
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