September 21, 2008 / 10:59 AM / 11 years ago

Pakistan's bombing seen a big blow for markets

KARACHI, Sept 21 (Reuters) - A suicide bomb attack which killed at least 53 people in the Pakistani capital Islamabad will be a big blow to foreign investment and will lead to further weakening of the rupee which is already trading at a record low, dealers and analysts said on Sunday.

A suicide attacker set off a huge truck bomb on Saturday night at the Marriott Hotel, part of a U.S.-based chain and a favourite haunt of diplomats and rich Pakistanis.

The Czech ambassador and an American and German national were among the dead, while more than 270 people were wounded in the worst militant attack in the capital.

“In the short-term, its another hammering for the rupee,” said a currency dealer.

“It’s a big blow for foreign investment as foreigners are going to feel less secure in investing in Pakistan and the fact that the government is not able to control these attacks does not leave much confidence in the market.”

The Pakistani rupee weakened to to a record low of 78.27 against the dollar on Saturday because of weak economic fundamentals and the global financial crisis.

It has lost 21.3 percent against the dollar since the beginning of the the year.

Dealers also said the market was short of dollars because of the central bank’s buy/swap operations. The central bank has been buying dollars in the ready market with a simultaneous commitment to sell them back in future, they said.

Dealers said they expected the rupee to weaken past the 80 rupee mark.

“It will affect the eroding rupee as hopes of immediate foreign inflows will decline after this tragic incident in which foreigners were also killed,” said Mohammed Sohail, director of equity broking and research at JS Global Capital Ltd.

“FOREIGNERS RUNNING AWAY”

Inflation in Pakistan is over 25 percent. The country also has a widening current account deficit and falling foreign reserves.

Data released on Sept. 18 showed total foreign currency reserves fell to $8.91 billion in the week ending Sept. 13, down $190 million from the previous week.

Analysts said the hotel industry would also be hit hard with foreigners more likely to stay at lower-profile guest houses.

“Foreign investment would be deterred further - especially in the hospitality sector which has generated a lot of interest in recent times,” said Ahsan Chisti, head of international institutional sales at BMA Capital Ltd.

Dealers said stocks were not expected to take a hit because of a floor placed on the main index .KSE but the violence would add to uncertainty that has sapped confidence in what until early this year had been one of Asia’s better performing markets.

The KSE-index has has shed 34.6 percent since the beginning of the year and is 41.5 percent lower than a life high set in April.

Exchange authorities placed a floor on the main index on Aug. 28 to prevent it from dropping below 9,144 points.

The KSE board will review the floor on Thursday but dealers said because of Saturday’s bombing, it was unlikely to be removed for some weeks.

“We’re making foreigners run away, sometimes by adhoc measures such as imposing a price floor and now because of this attack,” said Shuja Rizvi, director of broking operations at Capital One Equities Ltd. (By Sahar Ahmed; Editing by Robert Birsel and David Cowell)

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