Pakistan thought how to avoid a stock Exchange crash, but …….

Riots in from of Stock Exchange building in Pakistan in july-2008.

After an excellent start of 2008 for the Pakistani stock market,  with an stock exchage index near about 16,000 until march 2008, globalization begins to affect KSE100 index in Karachi starting in March and April 2008 a clear and severe bear market. Apart from national companies such as oil company in Pakistan with 15% of the weight of the index, other companies are pakistanies subsidiaries of large multinationals such as Nestle, Colgate Pakistan or Pakistan Lafarge Cement.

In summer of 2008, the local authorities are concerned about the stock market in Karachi because it approached the levels of 10,000, so 60% less than a few months earlier. And then emerged the figure of the typical politician or senior official. “I’m already tired of the stock market falls, tomorrow will publish a law which forbide the market falling below the 9550 level”.

So the  the stock market continued to fall and arriver to the level specified by the law. The autorities close the stock Exchange until december 2008.

Pakistan stock index chart (jun-2007, feb-2009,). Click to enlarge, source: Bloomberg9

¿What happened then?, Very simple, as you can see in the chart after the market closed = straight line, after a few months, the stocks every day fell by 5% rate, the maximum allowed in one day, but without crossing any operation since nobody wanted to buy. Several days after falling by 5% per day, in december arrived  the first purchases at the 6000 level at KSE100 index, but then the index fell to levels below 5000 ¡¡¡¡¡.