Coup Caused Minimal Trading Disruption
November 1, 1999
The military coup that took place in Pakistan on Oct. 9, closing the Kurachi Stock Exchange for one day, caused minimal disruption in the pricing of securities among U.S. fund managers.
As a result of the coup and the market shutdown, Morgan Stanley Dean Witter of New York used fair value pricing on just that one trading day for the three funds it runs that hold securities in Pakistan, said Robert Meyer, managing director for Morgan Stanley. Since the coup, the Pakistani market has stabilized, so the disruption has been minimal, he said.
"Anytime a market is closed for an extraordinary event, such as the earthquakes in Turkey and Taiwan, our traders meet with our pricing group to decide if we want to mark down our positions," Meyer said. "On the day the market was closed, we decided to move many of our holdings to American Depository Receipts and to mark down our remaining holdings seven percent. In fact, the day after, the market was down seven percent, so we were right on target."
Morgan Stanley runs the only three U.S. mutual funds that currently have exposure in Pakistan, according to Lipper of Summit, N.J. These are the Pakistan Investment Fund, with $33 million of assets under management; the Morgan Stanley Dean Witter Emerging Markets Fund, with $285 million; and the Morgan Stanley Dean Witter Asia Pacific Fund, with $766 million, according to Lipper. Data is as of Sept. 30.
CIBC World Markets of New York runs the $216 million Asia Tigers Fund, which had invested in Pakistan. However, the fund's portfolio manager, Punita Kumar-Sinha, moved the fund's investments out of Pakistani securities late last summer, prior to the coup, because she "was never confident about the situation there," she said.
On Saturday, Oct. 9, General Pervez Musharraf, head of the Pakistani army, overthrew Prime Minister Nawaz Sharif and the rest of the nation's elected government. The Kurachi Stock Exchange was closed the following Monday.
The earthquakes in Taiwan in September and in Turkey in August caused the stock markets in those countries to be closed for two and five business days, respectively. In addition, significant power outages and numerous communications failures continued to impede trading even after the stock markets reopened. (MFMN 9/13/99) This forced portfolio managers of funds invested in those markets to scramble for fair value pricing by calling brokers in those countries for a read on the markets and by monitoring stock markets in neighboring countries.
However, an official from the SEC recently said that portfolio managers at some funds invested in Taiwan failed to meet the SEC's obligation to compute the funds' daily net asset value via fair value pricing. (See "At Deadline") Paul Roye, director of the SEC's division of investment management, said a minority of about 20 funds that held Taiwanese securities were slow to switch to fair value pricing of their securities after the earthquake and only did so at the prompting of the SEC.