Rupee Devaluation Not Enough to Reignite Ailing Pakistan Stocks

  • Pakistan currency weakened almost 4 percent in last two days
  • Tundra Fonder says investors want to see 10-15 percent drop

Don’t expect Pakistan’s currency devaluation to lure foreigners back to its laggard stock market just yet.

The central bank’s apparent decision to loosen its hold on the rupee, allowing it to drop almost 4 percent over the past two days, has left investors wondering how much farther it’s got to fall. At least a 10 to 15 percent decline would be needed to revive foreign interest in equities, according to Tundra Fonder AB, a Swedish asset manager that specializes in frontier markets.

Read more on the Pakistan rupee devaluation here

“I don’t think it is enough’’ if the currency stabilizes around the current level, said Mattias Martinsson, the Stockholm-based chief investment officer at Tundra Fonder. “In our discussions with investors and potential investors, 80 percent of the discussion has been on the currency.’’

Pakistan’s benchmark KSE100 Index has tumbled 27 percent from a peak in late May amid a widening current-account deficit, falling foreign-exchange reserves and as the prime minister was ousted over the corruption charges. Foreign funds have pulled a net $585 million from the market over the past 12 months, despite MSCI Inc.’s restoration of the nation’s stocks to its emerging-markets index in June.

The benchmark gauge rose 0.5 percent as of 12:19 p.m. in Karachi following a 0.1 percent increase on Tuesday. It dropped 1.5 percent on Monday as the rupee tumbled.

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