News Column

STOCK MARKETS SURGING AND ECONOMY RECOVERING

January 26, 2014

MOHAMMED ARIFEEN

Stock markets around the advanced countries surged in 2013. Confidence returns among investors despite declining of the US Federal Reserveís monetary increase program. American equity markets recorded their healthiest year since 1997, with the SandP 500 finishing the year 30 percent higher than it was a year earlier. European stock markets also exhibited their strongest yearly performance since 2009. The strongest performer of the large eurozone economy stock market indexes was Germanyís Dax, which rose 23 percent on the year. Despite Franceís economic difficulties, the CAC index rose to 18 percent. Spainís IBEX increased to 21 percent and Italyís MIB rose to 12 percent in 2013. The Greek stock market rebounded by a phenomenal 24 percent over the 12 months, although it remains 45 percent lower than its highest in October 2008 . In the UK , the FTSE 100 index finished the year up 14 percent, its best performance in four years. The Brazilian stock market suffered in 2013, losing 18 percent over the year. In Asia , Japanís Nikkei index was the robust performer of 2013. It climbed to 52 percent over a year, with investors irked by Prime Ministerís overhaul of monetary and fiscal policy designed to pull the worldís third largest economy out of its 20 years long deflationary stagnation. The Indonesian stock market also stagnated, ending just 2 percent higher than it began. MSCIís emerging market index fell by 5 percent in 2013. The Indian stock exchange recovered from its drop in the summer brought on by rumors of the Fedís taper of its asset purchases, which has been supporting equities in the developing world. Mumbaiís BSE Index finished the year up 9 percent. The entire Indian economy is recovering: eight core sectors, including steel, cement and coal, grew at fastest in a year. The current account deficit, which once threatened to cross $85 billion , has been contained. Based on double digit export growth and a contraction in imports, it will come in at around $60 billion . Provisional numbers show that apart from the three months of June to August, foreign institutional investors (FIIs) have been net buyers of Indian stocks. September and October have both seen positive inflows. It helps that the government has credibility on its commitment to keep the fiscal deficit down. Gold exhibited its largest annual decline in 30 years in 2013, with the spot price falling by 28 percent over a year to $1,190 per ounce. Investors in gold suffered their first annual loss since the Millennium. Meanwhile, the price of silver fell 36 percent, its worst annual performance since 1982. The prices of American and British sovereign bonds also fell. Treasury bonds finished the year yielding just 3 percent, up from 1.8 percent at the beginning of the year. On currency markets, sterling ended the year strongly against the US dollar at $1.65 , up from $1.62 in January. The US currency also rose strongly against the Japanese yen. The euro ended 2013 at its strongest level against the dollar in two years at $1.38 . Two of the hottest stock markets in the world are in the Gulf of Arabia this year. Among the Arabian Gulf States their commercial capital Dubai stands out with the Dubai Financial Market . Iranian stock market surged 133 percent in 2013 beating the Dubai Financial Marketís 113 percent jump. Karachi stock market was one of the best performing stock exchanges in the world. The year 2012 was a good year for the Karachi Stock Exchange ; the KSE 100 Index witnessed a growth of nearly 50 percent almost touching the figure of 2,500. At the start of 2013, KSE 100 Index was almost 17,000. KSE performance in 2013 was dramatic giving a gain of over 50 percent and ranking amongst the top 10 performing stock exchanges of the world. KSE-100 Index was up 49.4 percent in 2013. It remarkably beat Morgan Stanley's MSCI emerging market index which remained essentially precise. The remaining three BRIC countries -- Brazil , Russia and China witnessed their key stock indexes dropped in 2013. According to the State Bank of Pakistan (SBP), Pakistanís bourse attracted a total foreign portfolio investment of $141.3 million during July-October as opposed to $123 million in the corresponding four-month period in fiscal year 2012-13. This shows a year-on-year growth of 14.8 percent. Foreign portfolio investment amounted to $119.5 million in fiscal year 2012-13. It was at its highest level of $1.8 billion in 2006-07. Out of the total foreign portfolio investment in the four-month period, the highest inflows came from the United States , which amounted to $62.1 million . The injection of liquidity by the Federal Reserve in the American economy is higher investment in emerging markets, such as Pakistan . Consequently, stock markets from Brazil to Pakistan are flushing with investments from the US, and the trend is likely to continue until the tapering of the quantitative easing policy. Karachi stock market will hit 30,000 points in 2014. Based on its fundamentals. Market pundits are quite optimistic that the local bourse will continue the positive momentum in the year and onwards. In the fiscal year 2014, Pakistanís economy is likely to recover with GDP growth of four percent to five percent, after a gap of six years, with the support of manufacturing sector. The governmentís focus on the economic and energy issues will help overall economic activity and investment climate in 2014. There is still a great concern over the overall economic situation of the country. Jobs are not being generated, significant industrial expansion is not there and the State Bank of Pakistan maintains a tight monetary stance. GSP Plus status for textiles, developments on the privatization front and the auction of 3G licenses, will create significant investment; therefore, the current bright trend is likely to continue going forward.


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Source: Pakistan & Gulf Economist


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