Pakistan Poised to Extend Trading Curb as Stocks Drop

By Pooja Thakur and Farhan Sharif

Sept. 9 (Bloomberg) -- Pakistan is set to extend an August curb on equity trading as concern grows that an end to the limits may cause the benchmark KSE 100 Index to plunge anew after the Karachi Stock Exchange lost a third of its value this year.

Directors of the bourse are likely to keep the rules in place during a meeting today, Shehzad Chamdia, a board member, said in an interview yesterday from Karachi. The exchange's 200 brokers earlier recommended the board maintain a freeze that prevents stocks from falling below their Aug. 27 closing price.

``Everyone agreed there should be an extension,'' Aqeel Karim Dhedhi, chairman of AKD Securities Ltd., said after a meeting of brokers yesterday. ``It could even be extended till early October.''

The KSE100 Index declined 16.61 points, or 0.2 percent, to 9,279.62 at the 1:30 p.m. local time close. The index dropped for a second day since the limit was introduced Aug. 28. The freeze along with a bailout of individual investors in July and an emergency stock-buying fund set up last month have all failed to halt the benchmark index's 32 percent slump this year.

The exchange's board will review the restrictions today that set the previous day's stock prices as a bottom limit for trading. Securities can trade within the 5 percent daily limits ``but not below the floor-price level'' set on Aug. 27, the exchange said at that time.

Not Sustainable

``It is clear that such restrictions are not positive, nor sustainable,'' said David Chatterjee, who helps manage $112 billion of investments at Pictet Asset Management, a unit of Switzerland's largest closely held private bank, in London. ``Market volumes have collapsed and there will be further downward pressure after the lifting of the limit.''

The benchmark index declined 0.2 percent to 9,280.30 at 9:45 a.m., after falling 0.5 percent yesterday. The KSE 100 Index has plunged 41 percent from the record in April amid a burgeoning insurgency by Islamic extremists and a worsening economy. The Karachi exchange has set a bottom limit for the KSE100 Index at 9,144.93, a 26-month low.

Asif Ali Zardari, who will be inaugurated today as the nation's president, pledged to help ``pull Pakistan out of its present state of affairs,'' according to an interview with the News newspaper after he was elected Sept. 6 by Parliament. The nation's currency is trading at its weakest level ever and inflation has climbed to its highest in 30 years.

Zardari, 52, takes over after securing the presidency backed by his Pakistan Peoples Party, the largest group in the coalition government. The coalition split last month as former partner Nawaz Sharif, head of the Pakistan Muslim League, accused Zardari of reneging on a pledge to reinstate judges fired by Pervez Musharraf. Musharraf quit as president on Aug. 18.

Trading Slows

Average daily trading on the six-decade-old bourse in Pakistan's commercial capital sank to 5.35 million shares on July 4, the lowest since at least 2000, and has been 86 percent below the prior year-to-date average since the limits were imposed on Aug. 28.

National Bank of Pakistan, the nation's biggest lender by assets, dropped 56 percent in 2008. Pakistan State Oil Ltd., the country's largest fuel retailer, has declined 31 percent, while Pakistan Telecommunication Co., the nation's biggest phone-service provider, is down 25 percent.

``Negativity in the market is expected to prevail for now,'' Romessa Mirza, an analyst at local broker InvestCap, said in a note dated Sept. 5. ``Even if the floor is done away with, the avalanche of sell orders in the backlog is expected to bring the market down quite a bit, at least initially.''

Investor Exodus

Political instability and Pakistan's failed attempts to shore up the market has spurred an exodus of investors, with the market value of companies plunging to $39.2 billion on Sept. 7 from a peak of $75.7 billion on April 4.

Hundreds of investors stoned the exchange and shouted anti-government slogans on July 16 after the bourse removed a 1 percent daily limit on price declines. Police and paramilitary forces ringed the facility the following day to quell the protests from investors, after a 15th straight decline in the benchmark index, the worst losing streak in at least 18 years, eroded their earnings.

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 had banned short-selling, narrowed the limit on declines to 1 percent from 5 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.

To contact the reporter on this story: Pooja Thakur in Mumbai at pthakur@bloomberg.net; Farhan Sharif in Karachi, Pakistan at fsharif2@bloomberg.net.