Few would dispute that 2002 was an awful year for equities. The MSCI World index plunged nearly 20% and the same was true for the MSCI North America and MSCI Europe. While stock markets and investors' portfolios crashed in nearly every developed market except for New Zealand (where the index rose 16.2% last year) and Austria (up 9.5%), net capital flows to emerging markets turned negative.
But in 2002 it was in emerging markets where all the bestperforming indices were to be found. The MSCI Pakistan index, up by 100.5%, was the world's best, followed by the MSCI Czech Republic and MSCI Hungary, up 35.3% and 31.6% respectively. Eastern Europe was the best region with the MSCI Eastern Europe up 12.4%.
Pakistan's stellar performance came on the back of increased investor optimism in the strong economic policies of Pervez Musharaf's military government. The government achieved solid improvements in balance of payments and fiscal positions. Moreover its frontline role in the US war on terrorism helped it to win favourable terms from the IMF, World Bank and Paris Club. The Karachi exchange's KSE-100 index breached the 2500 level to hit an eight-year high.
There were even bright spots in South America, the worst-performing region (down 24.8%).