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As the PSX index was sinking to 48,823 until June 3, thousands of foreign and domestic investors wondered whether it was doomed forever or it would recover? The week ended June 3 had seen the biggest loss of 4,082 points and the largest single-day decline was recorded at 1,811 points, or 3.58 per cent.
Ironically, on June 1, Pakistan was upgraded by the MSCI Emerging Markets Index, when the PSX, instead of going up, went down.
The boost on June 5 struck down all pessimism as it recorded a single day high of 1,565 points.
The Pakistani stock market's record of recent growth is attractive to foreign and domestic investors. It may be recalled that the stock market had ballooned to over 53,300 points in late May. On May 11, the PSX stood at 51,750. But on June 1, the PSX was upgraded by the MSCI Emerging Markets Index and the index slid to a low of 48,780.81 points.
Besides the upgrade, the MSCI also declared Karachi as top of "Asia's 20 best performing stock exchanges". Prior to the upgrade, in May, the market was doing well. Week after week, it was reporting a rise of hundreds of points and drawing millions of shareholders and investors from Pakistan, the UAE, Saudi Arabia, Middle East and the European Union.
The present troubles of the PSX are attributed to various political and financial problems. For instance, Zafar Motiwala, director of the PSX and a former minister for investment, said political changes at the micro level would have a big impact on the stock market. By this, he was referring to the current campaign against Prime Minister Nawaz Sharif and his family's alleged offshore investments.
"If the Nawaz Sharif government is sent packing, as a result of the current inquiry, then it will have a huge impact on the stock market," Motiwala said.
Net sellers
Foreign investors were net sellers of shares in the PSX in May.
"Big investors from home and abroad orchestrated the PSX carnage to pocket maximum profits. It is manipulation of the market to earn big profits," said Shahid Hussain Siddiqui, one of Pakistan's senior economists.
The current anti-Sharif agitation by some political leaders is not big enough to recreate the turmoil of fy-2008. That was the year when the economy and the stock market were doing well, but the anti-government agitation that followed hit business and the stock market.
What is hurting the stock market more than the anti-Sharif sentiment is the government's mishandling of the economy by Finance Minister Ishaq Dar. In a bid to boost budgetary spending, he has levied a number of taxes on businesses, the financial sector and industry. It happened at a time when these sectors were already suffering from a continued energy crisis, high costs of doing business and growing competition from India, China, Bangladesh and Vietnam. Also, the 2016-17 current account deficit is at a historic high and there is no sign of reduction in years to come.
The country also has to make repayments of foreign loans which will hit the current account deficit.
No help for market
The levy of new taxes, and increase in old ones, and Dar's refusal to help the capital market, banks and other companies resulted in the PSX slide. In order to correct the situation and help the capital market and the economy do better, suggestions are coming in.
"Dar's budget for 2017-18 is negative for investment. The Pakistan Stock Exchange has recommended remedial measures for making the capital market an engine of growth. But we still have not seen a response from the government," a spokesman of Pakistan Stock Exchange Limited (PSX) told Khaleej Times.
"The PSX taxation committee is surprised at the budget proposals. No consideration has been given to our proposals," he said.
The PSX spokesman said Prime Minister Sharif had promised to reduce the corporate tax to 30 per cent of the current amount. This has been circumvented by levying super tax and increasing tax rates on dividend income and capital gains.
"The government's taxation regime discourages corporatisation and listing of companies on the stock exchange. Securities business cannot develop under such a taxation regime nor can savings be encouraged," he added.
The PSX had suggested improvements in taxes. It was partly the political skirmishes, but mainly the new budget's taxation that hit the market at a time when the PSX should have been celebrating its upgrade.
The writer is based in Islamabad. Views expressed are his own and do not reflect the newspaper's policy.
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