By Farhan Sharif and Chua Kong Ho
Aug. 28 (Bloomberg) -- Pakistan imposed emergency trading limits to halt a slide in stocks that sent the benchmark index down 42 percent since April, the second attempt in two months to restore confidence in a market battered by political upheaval.
Curbs to prevent shares from falling below yesterday's closing prices will remain for seven to 10 days ``until the situation improves,'' said Razi-ur-Rahman Khan, chairman of the Securities and Exchange Commission. The Karachi Stock Exchange 100 index rose 0.4 percent, snapping a six-day, 16 percent drop.
Pakistan's stock market value has almost halved to $38.8 billion from the peak on April 4 amid a political crisis leading to the ouster of President Pervez Musharraf and breakup of the coalition government. Investors stoned the exchange last month after a first attempt to impose limits failed to halt the slump that threatened to undo a 14-fold rally since 2001.
``With these draconian measures to support the market, there's a real question whether you can get out,'' said Mark Tan, director at UOB Asset Management Ltd., which oversees about $3 billion in Asian equities excluding Pakistan stocks. ``It adds to the uncertainty.''
Securities can trade within their daily limit of 5 percent ``but not below the floor-price level'' of yesterday's close, the Karachi Stock Exchange said on its Web site, without giving details. The Lahore and Islamabad stock markets will follow the same guidelines, regulator Rahman Khan said.
``The market required a cooling off period,'' Rahman Khan said in a telephone interview from Islamabad today. ``When the situation improves, then the cap will be lifted.''
Imposed Curbs
Pakistan was forced on July 11 to remove the first curbs it imposed after trading in Karachi slumped to the lowest in 10 years. Regulators banned short-selling, narrowed the limit on declines from 5 percent to 1 percent and doubled the cap on gains to 10 percent, in measures announced late on June 23. Short sellers borrow shares and sell them, hoping to replace the stock at a lower price and pocket the difference.
As of 12:43 p.m. today, 38.2 million shares had traded on the Karachi exchange, according to its Web site. That compares with an average of 211 million a day over the past year, according to data compiled by Bloomberg.
``This could cause liquidity to dry up because who wants to buy if they can only pay a higher price?'' said Daphne Roth, Singapore-based head of equity research in Asia at ABN Amro Private Bank, with about $30 billion of Asian assets. ``Risk appetite is low and investors are avoiding markets where there is political instability.''
Rival Candidates
Pakistan's biggest political parties on Aug. 26 proposed rival candidates to replace Musharraf in a Sept. 6 parliamentary vote. Asif Ali Zardari, head of the Pakistan Peoples Party, will compete with nominees including former chief justice Saeed-uz- Zaman Siddiqui, put forward by Nawaz Sharif, leader of a faction of the Pakistan Muslim League.
Sharif quit the coalition on Aug. 25, accusing Zardari of reneging on a pledge to reinstate judges fired by Musharraf. Stocks have plunged on concern the political instability will blunt government efforts to tackle a rising Taliban insurgency, grapple with inflation at its highest in 30 years and revive the faltering economy.
``The market is definitely in a condition where it will need some extraordinary measures,'' said Nasim Beg, who manages the equivalent of $370 million in stocks and bonds as chief executive officer of Arif Habib Investments Ltd. in Karachi.
Ringed Exchange
Police and paramilitary forces ringed the exchange on July 17, a day after hundreds of investors stoned the building and shouted anti-government slogans. The protests followed a 15th straight decline in the benchmark index, the worst losing streak in at least 18 years.
``Freezing the index would not be a good idea,'' said Habib-ur-Rehman, who manages the equivalent of $91.5 million of stocks and bonds at Karachi-based Atlas Asset Management Ltd. ``Direct intervention in market movements would lead to further complications as we have seen in the recent past.''
To contact the reporter on this story: Farhan Sharif in Karachi, Pakistan, at fsharif2@bloomberg.net; Chua Kong Ho in Shanghai at kchua6@bloomberg.net
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