* Pakistani stocks up 28 pct in 2010 vs 63 pct in 2009
* Average daily volume in 2010 lowest since 2001
* Foreigners bought shares worth a net $515 million in 2010
KARACHI, Dec 31 (Reuters) - Pakistan’s main stock market closed out 2010 with a 28 percent annual gain, driven by foreign buying mainly in the energy sector, despite concerns about the country’s macroeconomic indicators after summer floods.
But volume remained thin, partly because Pakistan was unable to complete its $11 billion loan programme with the International Monetary Fund.
It had to ask for a nine-month extension for the remaining two tranches amounting to over $3 billion.
“The market rallied 28 percent in 2010, supported by high foreign inflows despite the devastation caused by the floods,” said Asad Iqbal, chief investment officer at Faysal Asset Management Ltd.
The August floods caused damages amounting to around $10 billion but foreigners were active buyers in the market and purchased shares worth a net $515 million. Market data for Dec. 31 will be released later in the day.
“With 40 percent of the KSE-index weighted towards the oil and gas sector and international oil prices rallying to over $91 a barrel, it wasn’t entirely a surprise but the resiliency of corporate earnings was also a major contributor,” Iqbal said
On the day the Karachi Stock Exchange's benchmark 100-share index .KSE ended 9 points or 0.07 percent lower at 12,022.46, after closing at a near 30-month high the previous day.
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FISCAL REFORM
Volume was 144 million shares compared with 140 million traded on Thursday.
“Average turnover was 121 million shares a day, the lowest since 2001 because of the absence of any investor-friendly derivative product,” said Mohammed Sohail, chief executive officer at Topline Securities Ltd.
Dealers said average volume was thin also because of concerns about external funding for Pakistan as the IMF along with other international donors have expressed concerns over Pakistan’s low tax-to-GDP ratio, which is close to 10 percent and one of the lowest in the world.
They have made it clear that the country would need to implement fiscal reforms for the release of further foreign funding.
The IMF extension likely will worsen Pakistan’s fiscal deficit because its fiscal year ends on June 30 and part of the money originally scheduled for 2010/11 will now fall in 2011/12, creating a larger shortfall for the current year.
Investors are also concerned about government borrowing from the central bank, dealers said, which ballooned to a provisional 297 billion rupees ($3.5 billion) from July 1 to Dec. 18.
The KSE-index gained 63 percent in 2009.
In the currency market, the rupee PKR= ended at 85.61/68 to the dollar, firmer than Thursday's close of 85.67/73 amid a lack of import payments in the market, but dealers said the local unit could come under pressure following a rise in international oil prices.
The rupee lost 1.53 percent this year after losing 6.17 percent in 2009 and dealers said it should remain steady in the coming year if Pakistan manages to keep its economy on track.
However if there is lack of external aid or foreign inflows then the rupee could come under pressure, dealers said.
In the money market, overnight rates ended lower at between 13.15 percent and 13.50 percent, compared with the previous day’s close of 11.15 percent, as the State Bank of Pakistan sold treasury bills worth 24 billion rupees in a 34-day outright sale. (Editing by David Holmes)
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