This is really scary news…
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!
…After a few palpitations, the Karachi market has now flat-lined. …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.
…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.
Paul slightly amended his last sentence in one of the comments to:
…Let’s call it a systemic collapse of a country containing a sizable terrorist faction.
Also stumbled on this earlier today: Pakistan’s “Macabre” Economics in which Desh has this memorable sentence:
Aid was Pakistan’s “monetary and fiscal policy”. When it was absent, then it was Nuke and military sales.
http://satyameva-jayate.org/
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