Does The Violence In Pakistan’s Stock Market Signify Signs of Panic?

Some people have taken the recent stock market plunge to the political realm.

From Bloomberg (highlight mine), ``Pakistan's main stock exchange received police and paramilitary protection after investors stoned the building in protest at collapsing share values.

``I have lost my life savings in the last 15 days and no one in the government or regulators came to help us,'' said Imran Inayat, an investor who was part of the protest.

This is the common problem with retail participants: most of them don’t understand the risks involved in the financial markets. They jump in when market momentum keeps moving up (because mostly of the misleading notion of “keeping up with the Joneses” and the prospects of "perpetual short term gains") but when slammed with losses they demand regulators to “save them”.

In short, privatize profits but socialize losses from reckless activities.

Courtesy of Bloomberg: Pakistan’s Karachi 100

Seen from the long term, the returns for long term investors hasn't been all that bad; Pakistan’s Karachi 100 has been up by over 300% since 2004 and has lost nearly 35% from its peak.

It's just a matter of overconfidence turned into frustrations especially for retail punts.

In addition, government intervention only complicates the situation…

Again from Bloomberg,

``Regulators this week eased curbs on trading, removing a 1 percent limit on price declines that led trading volumes to fall to the lowest in a decade. Shares have slumped 29 percent this year, ending a rally that had pushed the key index more than 14- fold higher since 2001.

``There has been some level of mismanagement by the authorities,'' said Habib-ur-Rehman, who manages the equivalent of 6.5 billion rupees ($90 million) in Pakistani stocks and bonds at Atlas Asset Management Ltd. in Karachi. ``This may be due to their misperception that they can prevent the market from falling. Investors have to learn to bear losses as they do gains.''

You can watch the video from Javo.tv (hat tip: Charleston Voice)
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The point is-in the psychological cycle of markets, this indicates of a transition to the cycle of desperation and panic which eventually culminates with capitulation or depression...or your market bottom.

Perhaps the Pakistanis are nearly there.