Pakistan Stocks, Rupee Advance After President Musharraf Quits

By Pooja Thakur

Aug. 18 (Bloomberg) -- Pakistan stocks and the rupee rose after President Pervez Musharraf resigned, ending a six-month standoff that had distracted the government from preventing an economic slowdown.

The benchmark share index rose 4.5 percent, the most in eight weeks, led by Oil & Gas Development Co. and MCB Bank Ltd. The rupee had its biggest advance in a month against the dollar, after Musharraf quit to avoid facing impeachment charges.

``Clearly we see this as a positive,'' said Thomas Harr, a senior currency strategist in Singapore at Standard Chartered Plc, a London-based bank that gets most of its profit in Asia. ``There was political uncertainty and now you can say there's a little bit of clearance on that.''

The government's struggle to oust Musharraf has diverted its focus from reviving slowing economic growth and tackling food shortages. Coalition leaders Nawaz Sharif and Asif Ali Zardari have been criticized by the U.S. for not doing enough to fight militants on the border with Afghanistan.

The Karachi Stock Exchange 100 Index climbed 460.91 to close at 10,719.62. The rupee advanced 1.2 percent to 75.50 per dollar. Harr said the rupee may rise to 74.50.

Investors stoned the stock exchange last month after a slump wiped out $30 billion of market value in three months, prompting the regulator to attempt to support the market. The Securities and Exchange Commission of Pakistan imposed and then removed a 1 percent daily limit on price declines after stock trading volumes fell to their lowest in a decade.

Democratic Path

``The country will try to get back on a complete democratic path,'' said Farhan Rizvi, an economist at JS Global Capital Ltd. in Karachi. ``The government will focus on developmental issues. It will try to attract capital flows.''

The rupee may stabilize near 75 per dollar, stocks will rise and the yield premium for investing in the nation's debt will narrow, he said.

Still, the coalition government has its task cut out as it grapples with a slowdown in economic growth, a widening budget deficit and an inability to rein in inflation running at a 30- year high.

``It is too soon to say whether or not this is a credit- positive event because Pakistan's external finances remain under a lot of pressure and we have yet to see the effects of policy adjustments come through,'' said Aninda Mitra, vice president at Moody's Investors Service in Singapore. ``The rupee has depreciated in the past couple of weeks to unprecedented levels and much more work still needs to be done in terms of implementing policies.''

Year's Low

Credit-default swaps on Pakistan's government debt were last quoted at 740 basis points, unchanged from Aug. 15, according to CMA Datavision's prices. The contract has risen from this year's low of 410 basis points recorded on April 28.

The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. The contracts rise as perceptions of credit quality deteriorate. A basis point, or 0.01 percentage point, is worth $1,000 on a swap that protects $10 million of debt from default.

Oil & Gas, Pakistan's biggest petroleum explorer, rose by its 5 percent daily limit to 118.68 rupees, its highest since July 22. MCB, the country's second-largest lender, also gained the 5 percent limit to 303.71 rupees, the highest since July 10. Pakistan's currency, which has depreciated 22 percent this year, snapped a six-day 5.5 percent decline.

Musharraf has been under pressure to quit since he fired 60 judges, including Supreme Court Chief Justice Iftikhar Muhammed Chaudhry last year, leading to nationwide street protests. The government led by the Pakistan Peoples Party, which came to power in March after defeating pro-Musharraf parties in the Feb. 18 elections, vowed to reinstate the senior judiciary but has been unable to agree on how to do so.

To contact the reporter on this story: Pooja Thakur in Mumbai at pthakur@bloomberg.net