darkinsky
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The Economist Blog: How did Karachi get a world-beating stock exchange?
AS RICH countries economies slump, brave investors looking for fast returns may be tempted to look further afield. Which of the worlds more exotic markets offer the best returns? Mexico has developed a following among investors bored of Brazil. The Philippines has been on a roll too, recently winning its first ever investment-grade credit rating. But virtually everywhere is beaten hands down by the tiny Karachi Stock Exchange (KSE), which has risen by 40% so far this year in local currency terms. Of stock markets tracked by The Economist, only Japans has performed better.
This may not be what most people associate with Pakistans most populous city, which is more famous for terrorist explosions than economic booms. The exchanges strong performance is partly due to improving conditions in Pakistan, including a reasonably free and fair election in May which was followed by a peaceful handover of power. Meanwhile, the slowing down of the BRIC economies has driven investors to try out ever more exotic markets. All the same, the KSEs soaring growth is surprising: Pakistans economy is expected to grow by only about 3.6% this year, much less than many other emerging economies. And the stock exchange itselfwhich has a market capitalisation of just $52.7 billionis a tricky place to invest, with only 60 of its 569 listed companies trading regularly.
Part of the Karachi exchanges lightning growth is due to an unusual amnesty enacted in January 2012. The authorities declared that from that date, investors would be allowed to buy shares with no questions asked about where their money came from. The amnesty, which is due to last until June 2014, is designed to encourage people with undocumented funds to invest them in the market, thus bringing the cash into the formal economy and within reach of the taxman. It seemed to work: after the amnestys introduction, the average daily volume traded on the KSE more than doubled.
The boom is good news for investors. But some wonder if there may be a downside to relaxing the rules on checking the origins of the money being pumped into the bourse. Pakistan has more than its fair share of corruption: it falls within the bottom quarter of a worldwide ranking compiled by Transparency International, an anti-graft watchdog. If people want to launder their ill-gotten gains, the authorities have their work cut out to stop them: flagging up suspicious activity is left to banks and brokers. The KSEs growth is real enough, but the source of the rupees fuelling its boom is not always clear.
AS RICH countries economies slump, brave investors looking for fast returns may be tempted to look further afield. Which of the worlds more exotic markets offer the best returns? Mexico has developed a following among investors bored of Brazil. The Philippines has been on a roll too, recently winning its first ever investment-grade credit rating. But virtually everywhere is beaten hands down by the tiny Karachi Stock Exchange (KSE), which has risen by 40% so far this year in local currency terms. Of stock markets tracked by The Economist, only Japans has performed better.
This may not be what most people associate with Pakistans most populous city, which is more famous for terrorist explosions than economic booms. The exchanges strong performance is partly due to improving conditions in Pakistan, including a reasonably free and fair election in May which was followed by a peaceful handover of power. Meanwhile, the slowing down of the BRIC economies has driven investors to try out ever more exotic markets. All the same, the KSEs soaring growth is surprising: Pakistans economy is expected to grow by only about 3.6% this year, much less than many other emerging economies. And the stock exchange itselfwhich has a market capitalisation of just $52.7 billionis a tricky place to invest, with only 60 of its 569 listed companies trading regularly.
Part of the Karachi exchanges lightning growth is due to an unusual amnesty enacted in January 2012. The authorities declared that from that date, investors would be allowed to buy shares with no questions asked about where their money came from. The amnesty, which is due to last until June 2014, is designed to encourage people with undocumented funds to invest them in the market, thus bringing the cash into the formal economy and within reach of the taxman. It seemed to work: after the amnestys introduction, the average daily volume traded on the KSE more than doubled.
The boom is good news for investors. But some wonder if there may be a downside to relaxing the rules on checking the origins of the money being pumped into the bourse. Pakistan has more than its fair share of corruption: it falls within the bottom quarter of a worldwide ranking compiled by Transparency International, an anti-graft watchdog. If people want to launder their ill-gotten gains, the authorities have their work cut out to stop them: flagging up suspicious activity is left to banks and brokers. The KSEs growth is real enough, but the source of the rupees fuelling its boom is not always clear.
