Given all the pain in markets last week, I thought it would be a good time to check in again on The Land That Financial Bad News Forgot. Yes, Pakistan.
If you recall, the wise folks running the Karachi Exchange decided back in August that they would put a floor under the KSE at 9100. After watching stocks tumble 40% in the preceding six months, no longer would investors have to worry about their stocks falling further. They could only drop enough to take the index to 9100, and then … well, they couldn’t fall further. Bad news be damned!
So, how has that "no bad news" thing worked out? Is everything sunshine in Pakistan, what with having simply outlawed bad news from having any impact on share prices? Well, here is the 3-month chart of the KSE:
It looks more than a little reminiscent of a dying patient hooked up to an EKG. After a few palpitations, the Karachi market has now flat-lined. It has fallen to the 9100 floor — okay 9182 — and now sits there, in the uncomfortable the way non-viable markets do. Volumes have collapsed, going from a healthy 186-million shares a day to a comatose million shares a day, a 99.4% decline. It is simply no longer a viable exchange, with companies unable to raise money and investors unable to get liquidity or — heaven forfend — buy shares. Nothing. Traders are reduced to sleeping and playing video games.
And you’d be wrong. The Karachi Stock Exchange and the Karachi SEC are meeting this weekend to decide whether or not to simply close the exchange for good. At the same time, the "badla" rate, a sort of interest rate at which investors can borrow money, soared to 100% on Friday, making the record-high Libor look positively like a giveaway. It is, in short, really, really bad.
But the news gets even worse. The country’s debt has been downgraded by S&P deep into junk status; it has just enough foreign reserves to pay for two months of imports; and Pakistan looks increasingly like it will default on a major loan on Friday, plus it has $3-billion more in upcoming debt payments. Unless something happens quickly, we are about to see what happens when you have a systemic collapse in a nuclear power next door to a terrorist hotbed.