Stock market "attacks" are usually metaphors, the normal give-and-take of investors depicted as a battle. But on Monday, in Pakistan, the attack was for real.
Four gunmen pulled up outside the Pakistan Stock Exchange in Karachi in a gray Corolla, pulled out guns and grenades, and tried to blow their way into the trading floor. They threw a grenade at security guards outside the stock exchange, then began shooting at a security post, according to Reuters. When the security forces returned fire, they killed all four attackers, but not before two guards and a policeman were killed.
It's a day of retreat, figuratively, for stock markets in Asia today. Bizarrely, the benchmark Karachi Stock Exchange 100 index is one of the few dots of green on my screen, posting a 0.7% gain at the close. It dipped 0.6% into the red after word of the attack, then rebounded. By contrast, the Topix broad index in Japan ended down 1.8%, with Korean shares sitting on the biggest losses at a 1.9% decline.
The Pakistan exchange continued to operate throughout the attack. It appears that the security detail prevented much larger bloodshed, since the compound that includes the stock exchange also includes the offices of Pakistani brokerages and the headquarters of several banks. The gunmen intended to take hostages, according to the director general of the Sindh Rangers, an antiterrorism paramilitary unit, but were killed within eight minutes from the start of the attack.
Here in Hong Kong, the Hang Seng index ended down 1.0%, as the Communist Party in China "debates" its introduction of a treason-and-sedition law in Hong Kong. It's sure to be imposed, and will give the authorities broad scope to arrest anyone who criticizes the Chinese government. It is a disastrous law that undermines China's promises to allow autonomy in the city, and basically means Hong Kong is now just another mainland Chinese city.
Pakistan is a frontier market. You have to be brave to enter it. Apparently, literally so.
The majority Muslim nation is nominally a democracy. But it has long proved a safe haven for militants and Islamic extremists, who find kindred protective spirits among some members of the security forces.
A couple of friends of mine here in Hong Kong, one white and one black, have separately been doing business in Pakistan. Both men stand out. So they are required to be met by an armed bodyguard at the airport on every visit, before setting off in an unprepossessing car. Each route they take in the city must be carefully planned in advance. When they're not heading to meetings, they stay in their hotel. One of the men, desperate to get some exercise but bereft of any hotel gym, took his skipping rope up to the hotel roof. Nevertheless, he worried his bobbing head appearing and disappearing above the rooftop parapets could be a tempting target.
Monday's attack was claimed by separatists from Balochistan Province, rather than Muslim extremists. The Baloch Liberation Army asserted responsibility, Reuters reports, calling it a "self-sacrificing" mission by its Majeed brigade, on a new Twitter (TWTR) account that was swiftly suspended. Seven people were wounded, as well as the three non-terrorists who died.
Balochistan, on the country's southwest edge, is Pakistan's biggest province, rich in natural gas, coal and minerals. But it is also its least populated. Separatists claim its wealth is leached by the state, with the proceeds unfairly given to the country's richer, more populated provinces such as Sindh and Punjab. Separatists have been fighting a war for independence since 2004.
The Majeed brigade of the Baloch Liberation Army also claimed responsibility for an attack on the Chinese consulate in Karachi in 2018. China has funded a port in the Balochistan city of Gwadar, part of the China-Pakistan Economic Corridor that was one of the first beneficiaries of China's Belt and Road Initiative.
There aren't too many funds devoted to Pakistan. One of the few specialists in this region is Asia Frontier Capital.
AFC notes that Pakistani stock values mean the stock market is equivalent to only 15% of GDP, similar to levels last seen in 2009 in the tail of the financial crisis in the West. This is "creating once in a decade buying opportunities," CEO and fund manager Thomas Hugger says in email.
During market shocks, global investors sell frontier markets first. In 2008, the Karachi Stock Exchange 100 index fell 67.6%, only to recover 50.0% in 2009, and another 26.1% in 2010. It is one of the most volatile frontier markets so will be worth watching in the wake of Covid-19, too.
This year, the Pakistan market fell 37.0% from a January peak to its trough in March, one of the worst frontier-market showings. But the KSE 100 index rebounded strongly in April, up 25.3% for the month, making Pakistan one of the world's top performers. Since the end of April it has essentially been treading water while both India and Pakistan contend with worsening coronavirus outbreaks.
The economy remains partially locked down, but key industries such as construction have been allowed to resume. A US$1.4 billion loan from the IMF to assist in Covid response helped lead the Pakistan rupee to gains against the U.S. dollar, up 3.2% in April alone.
The main Pakistan holdings in Asia Frontier Capital's Asia Frontier Fund are in cement and automotive sales. Both sectors participated in April's rally, with the State Bank of Pakistan having cut interest rates by 425 basis points since 2019 to stimulate the economy.