The year 2002 has possibly been the most eventful and memorable year for Pakistan’s capital markets. On January 1, when the Karachi Stock Market began trading, the KSE index of 100 shares was at 1322 points: that proved to be the lowest point for the year.

Stocks never looked back and by December 27—two days before the end of the year—the index had shot up to the staggering level of 2683 points, before closing at 2661.38 which marks the all-time high for Pakistani equities. Investors in stocks have already harvested a bumper reward of 110 per cent this year on their investment. In terms of capital gains alone, anyone who may have been fortunate to place one million rupees in stocks in January, would be looking at a fattened portfolio of Rs 2 million plus.

Interestingly, in the year 2002 most major bourses across the world have recorded sharp plunge: US’s Dow Jones is down 16 per cent; the tech-heavy Nasdeq has dropped 30 percent; Japan’s Nikkei is down 21 per cent and UK’s FTSE has recorded a drop of 26 per cent. By mid-September, the KSE was already attracting media attention worldwide and prestigious publications such as ‘Business Week’ and ‘USA Today’ had declared KSE as the “best performing market in the world”. While the bourses across Europe are down to their seven year lows, the KSE has gone exactly the opposite way, the Pakistani stocks have soared to their eight year highs. Not the shrewdest of the stock market pundits could have anticipated in January that this would be the year of the Pakistani stocks boom.

The year had started out amid political uncertainties, both within and outside. But the terrorist attacks near US consulate and Hotel Sheraton and the high profile Daniel Pearl murder case, did nothing to dampen the spirits of the bulls. The pre and post election scenario did slow down the run-up, but did not quite put the brakes. Analysts have noted two features that sets the current stock market rally apart from the previous stock upsurge. One that the previous big boom market of 1994 was fuelled by the foreign investors, while local institutions and retail investors are behind big buying this year. Foreign investment in stocks in 1992 stood at a huge US dollars 2 billion, while according to the SBP figures released on October 19, the foreign investment was just about US dollars 240 million. Second, that unlike some of the previous rallies, there is a certain rhythm in the rise of stock prices this year; the market has not been excessively volatile.

Excess liquidity, most market pundits agree, is the fuel that is firing up the investors’ passion for stock buying. Since September 11, 2001, there has been a reverse flight of capital. Scared of its safety in foreign lands, expatriates are sending in tremendous sums of money. “It really is a liquidity-driven story of high yields”, agree most major market players. Bank interest rates are at their lowest with most banks offering as little as 3-4 per cent on deposits. De-dollarization continues and holding greenback does not look like the best bet. Fundamentally, Pakistani shares are posting attractive valuations in terms of average value per share; price/earning ratio; price/book value ratio; earning per share and the Return on Equity (RoE).

Advisor to the PM on finance Shaukat Aziz has attributed the record upswing in stock values to government’s economic reforms programme and strong economic growth, revenue collection and exports.The SECP has played a significant role in successfully implementing broad based market reforms in the fields of risk management, governance, transparency and investor protection. Companies are presenting timely accounts. “To give you an example, today 90 per cent of the listed companies are issuing annual reports and holding AGMs within given time frame”, says the KSE MD.

And almost all sectors are posting stellar financial results and robust dividends. The KSE is also taking proactive steps, thanks to the installation of an independent management.

Within 10 days of taking charge in September 19, the KSE managing director, Moin M.Fudda announced implementation of the universally approved “undisclosed trading system”, on which the bourse had been stalling for no less than three years.

A 10-day badla regulation was also imposed so as to prevent excessive volatility. The role of the Governor State Bank of Pakistan, who has revamped the monetary policy and launched vigilance that have lowered the interest rates and provided enabling environment for corporates to raise money through the corporate bonds (Term Finance Certificates).

But while the listed stocks have continued to climb, sponsors are curiously loathe to seize this opportunity to raise cash through new Initial Public Offering (IPOs).

In the last six years, only 14 companies have come up to raise Rs 6 billion in fresh equity and in 2002 just four companies tapped the capital market for equity funds.

The year 2002 was but another boom year for corporate bonds (TFCs) and 22 companies came up to raise funds from the investing public.

At the advent of the new year, equities are still climbing, which is why many brokers are passing around the word that the index is all set to cross the 3,000 points before June 2003.

Some estimate that even that level may be modest forecast, looking at the current raging bull market.

Bears have been driven away and analysts who were writing notes such as ‘sell all at current levels’ in October, have been proved incorrect. Yet some continue to look at the stock prices with disbelief. “Though institutions may find it difficult to resist even 89 per cent yields keeping in view the below 5 per cent rates for 12 months horizon, retailers should look for other avenues like National Savings Schemes, where the rates are still attractive even if we assume a possible;a rate cut of 150-200 basis points”, said an analyst at one brokerage house in his morning brief on Friday, adding, “We strongly advice out investors to book profits once the market touches its life time high of 2,661”. By the look of buying frenzy that day, no one seemed to be listening.