Monday, October 27, 2008
Bloomberg reports the Karachi Stock Exchange has extended its pricing "floor" indefinitely to prevent stocks from tumbling further, prior to the government being able to borrow enough money to buy shares. It seems to be working wonders as shown below via Reuters.
Those in the rest of the world can only dream of that kind of performance in equity markets over the last two months, prompting the question of why such floors are installed at other stock exchanges.
The U.S. has a debt ceiling - an artificial, yet movable limit to U.S. spending excess. Why not a stock floor? And, while they're at it, how about a housing price floor too?
"Some time is still required for the implementation of market stabilization measures,'' Adnan Afridi, managing director of the Karachi Stock Exchange told reporters today. Shaukat Tarin, the Prime Minister's finance adviser will visit the exchange on Oct. 31, after which a decision about ending curbs will be taken, he said.Down only one-third for the year and with volatility of less than one percent per day, this sounds like something the rest of the world should implement as soon as possible.
The Karachi Stock Exchange's benchmark KSE 100 Index has lost more than one-third of its value this year. Board members met over the weekend to discuss extending the curb, which was scheduled to be lifted on Oct. 27. The board also discussed ways to prevent possible violence by angry investors.
The eight-week-old trading curbs have prevented stocks from falling below their Aug. 27 closing prices, shielding investors from a record sell-off. Pakistan has twice imposed trading restrictions and bailed out individual investors. Since the curbs were imposed, Pakistan's credit rating has been cut, giving it the world's second-lowest grade.
The KSE 100 Index closed unchanged at 9,182.88 on Oct. 24. The benchmark has risen or fallen less than 1 percent on each trading day in the past seven weeks.
In the U.S., the
63 percent many 401k investors who have recently stopped contributing to their retirement accounts would surely reconsider their decision if such a floor was installed.
Better yet, why stop with just a price floor? Why not mandate an increase of, say, the rate of inflation plus four percent? That should fix things in a jiffy!