By Khalid Qayum and Farhan Sharif
Dec. 14 (Bloomberg) -- The Karachi Stock Exchange, Pakistan’s biggest, is seeking “clarification” from the regulator on the lifting of stock trading limits tomorrow, Managing Director Adnan Afridi said, after a court order threatened to delay the plan.
The Securities & Exchange Commission said yesterday it will “challenge” a court order if it’s forced to delay the removal of the trading restriction tomorrow. A judge at Pakistan’s Sindh High Court ordered the easing of trading limits be delayed until at least Dec. 16, the Business Plus news channel reported, citing the court’s order.
“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.”
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.
Afridi also said in the telephone interview yesterday that the exchange will review the court order with its directors, and plans to seek further clarification from the commission.
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.
Defaults
“Without the support fund and continuous funding system, there might be defaults by lots of brokers in the first few days,” said Shuja Rizvi, director of broking operations at Capital One Equities in Karachi. The investors and brokers are in no position to return borrowed funds, he said.
Pakistan stocks may decline as much as 50 percent after trading limits are lifted on Dec. 15, almost four months after they were initially imposed amid political upheaval, Citigroup Inc. said. The stock exchange is expected to retain a 5 percent daily trading limit that existed before the curbs were imposed.
“On fears of selling by foreigners and unwinding of leveraged positions, the market is expected to decline by 40 percent to 50 percent from the floor level,” Salman Ali, a Citigroup research director based in Karachi, said in a Dec. 12 report. “The currency may also come under pressure.”
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.
Expensive Market
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
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