E-Kantipur

KATHMANDU, NOV 03 -

The signing of the seven-point agreement on Tuesday has had a positive impact on the secondary market. The Nepal Stock Exchange (Nepse) responded positively to the deal, with the benchmark index posting a double-digit gain of 16.61 points on Wednesday, the biggest ever single day gain in the current financial year. Such was the upward swing on Wednesday that circuit breakers were imposed thrice.

Economists say it is only natural for the capital market to react to major political changes. “Political changes having a long-term impact on the economy is a worldwide phenomenon,” said Rameshwor Khanal, the prime minister’s economic advisor. “The latest agreement has given people the hope that the country will get a new constitution and will not slide back to conflict.”

Khanal said he expects economic activities to be more vibrant. “Of the four major markets, the capital market and the property market are very active and both will see positive changes,” he said.

However, there are still doubts on whether this surge will be sustainable. The capital market had posted gains in the same manner when the Constitutent Assembly (CA) tenure was extended for one year on May 28, 2010. The Nepse index had posted a double-digit gain of 26.95 points on May 30, 2010. But this surge did not last long.

Economist Bishwamber Pyakurel said the capital market’s reaction is a positive sign, but he also cautioned that the market’s performance will depend on how predictable politics will be in the future.

Stock analysts said Wednesday’s surge in the Nepse index was basically driven by market sentiment based on positive political development. They are skeptical of the sustainability of the surge amid high interest rates in bank loans. They said long term sustainability of the market is not only determined by political moves, but also by economic fundamentals. “Unless fundamental requirements like availability of money at lower interest rates, entry of new investors, and operation of CDS are in place, the surge may not last long,” said stockbroker Nanda Kishore Mundara.

However, stock analyst Jagadish Agrawal said the agreement has at least created an environment for investors to return into the stock market. This was reflected in Wednesday’s trading at the Nepal Stock Exchange when investors were in the buying mood.

President of Stock Brokers’ Association Nepal (SBAN) Anjan Raj Poudyal said stock prices shot up as there was excessive demand.

Unlike developed markets where political changes make a direct impact on the capital market, Nepal’s experience has been a mixed one. Against all expectations, the stock market had reacted positively when former king Gyanendra Shah had taken over absolute control of the government on February 1, 2005.

After Jana Aandolan-2 and the signing of the comprehensive peace agreement in 2006, the country’s capital market went for a bull run and remained bullish until the first half of 2008. However, when the then Maoist-led government hiked the capital gain tax and made disparaging comments on the capital market, the market started to decline. During the nine-month rule fo the UCPN (Maoist), Nepse lost 510 points.

Posted on: 2011-11-03 09:45

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