Pakistan Bourse to Lift Trading Curb Even as Court Orders Delay

By Khalid Qayum and Farhan Sharif

Dec. 14 (Bloomberg) -- The Karachi Stock Exchange, Pakistan’s biggest, plans to lift stock trading limits tomorrow as scheduled even as a high court judge ordered a delay, a board member said.

The stock exchange is also seeking guidance from the Securities & Exchange Commission, which said yesterday it would “challenge” the court order if it’s forced to hold back the removal of the trading restriction tomorrow. A judge at the Sindh High Court ordered the delay until at least Dec. 16, the Business Plus news channel reported.

“As of now, the market will open tomorrow,” Dawood Jan Muhammed, a director on the Karachi exchange’s board, said in a phone interview today. A letter seeking further clarification was sent by the board to the regulator yesterday, he added.

The trading curbs have prevented stocks from falling below their Aug. 27 closing prices, shielding investors from a record sell-off. The MSCI AC Asia Pacific Index has fallen 31 percent since the restriction was first imposed on Aug. 27. The rupee has fallen more than 21 percent this year, and is set for its biggest annual decline in more than two decades.

“We are reviewing the order and our lawyers will guide us on how to proceed on it,” Razi-ur-Rahman Khan, chairman of the Islamabad-based regulator, said in a telephone interview late yesterday. “If the court ruling is against our order of lifting limits on share trading on Dec. 15, we will challenge it in court.”

Brokers of Pakistani stocks want the government to support the stock market with a 20 billion rupee ($254 million) fund and provide a mechanism to manage the continuous funding system, or purchasing shares through borrowed funds, before the trading limits are lifted.

Shares May Fall

Pakistan stocks may decline as much as 50 percent after trading limits are lifted tomorrow, almost four months after they were initially imposed amid political upheaval, Citigroup Inc. said on Dec. 12. The stock exchange is expected to retain a 5 percent daily trading limit that existed before the curbs were imposed.

Pakistan will be removed from the MSCI Emerging Markets Index this month because of the restrictions on selling stock, MSCI Inc. said this week. The deletion will take effect at the close of trading on Dec. 31. The regulator announced the lifting of trading curbs on Dec. 11.

The Karachi 100 Index now trades at 9.9 times earnings, compared with the MSCI Emerging Markets Index’s 8.3 times. That makes Pakistan Asia’s fourth-most expensive market, tracking benchmarks in China, Japan and New Zealand.

The Karachi 100’s gains diminished this year -- after rising 11-fold when Pakistan’s economy expanded at least 4.7 percent a year between the end of 2001 and 2007 -- as the global credit freeze sent the rupee to a record low, the balance of payments deficit expanded to its widest level ever and inflation rose to a 30-year high.

The benchmark index has declined 35 percent this year, on course to complete its worst annual performance in 10 years. The emerging markets index has lost 56 percent.

To contact the reporters on this story: Khalid Qayum in Islamabad at kqayum@bloomberg.net; Farhan Sharif in Karachi at fsharif2@bloomberg.net