In Karachi, Pakistan, we have 2 very different tales in one city.
On the one hand, in a livability survey, Karachi is near the bottom of a list of 140 world cities. Power outages, kidnapping for ransom, marauding gangs and a chasm between rich and poor are all a normal part of urban life. Last year, there were close to 2500 violent deaths while Taliban unrest is spreading there from the northwest.
By contrast, you could have made a fortune on the Karachi Stock Exchange. Up 44% this year, the Karachi Stock Exchange counts a subsidiary of Nestlé as one major company that it lists. Just by investing in an index fund of Pakistani stocks for the past decade, you would have been up 26% a year. With firms on the exchange concentrating on consumer goods, construction and financial services, proponents of investing there say home based firms can target large segments of Pakistan’s population of 200 million or so.
But, as one investor commented, “It’s not a country for the fainthearted.” Or as another said, “As far as the killings go, forget about it–that’s a part of life.” But maybe we should remember what the 18th century investor Baron Rothschild probably said, “Buy when there’s blood in the streets, even if the blood is your own.“ And, we are frequently warned that when the upside is considerable, you are talking about colossal risk.
As economists, we can ask about the source and impact of new stock markets. Former Soviet Bloc countries sought privatization. Others wanted to attract the foreign savers who would take advantage of an emerging market’s investing potential. From there we can move to economic growth for a connection and the variables that shape success like colonial history, dependence on foreign aid and regional adoption of exchanges.
In the following list, do look at the proliferation of stock markets during the 1980s and 1990s. As of 1980, the world stock market count was 59; by 2005, 58 more had been added. Created in 1947, Karachi is not on the list.
Sources and resources: This NY Times article provides a good overview of the Karachi Stock Exchange (the source of my quotes about Karachi), here you can look at the Laotian Stock Exchange and for a more academic perspective on stock markets in developing nations, this paper was excellent. The livability report came from The Economist.