As this recent Bloomberg article reminds us, investing in emerging “Black Sheep” markets offers a myriad of challenges:

“…Pakistan investors stormed out of the Karachi Stock Exchange, smashed windows and cursed regulators after the benchmark index fell for a 15th day, the worst losing streak in at least 18 years.

…Police surrounded the exchange after hundreds of investors stoned the building and shouted anti-government slogans. Securities and Exchange Commission of Pakistan, which imposed and then removed a 1 percent daily limit on price declines this week, had attempted to halt a slide that wiped out $30 billion of market value in three months, threatening to undo a 14-fold rally 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 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.”

The benchmark Karachi Stock Exchange 100 Index dropped 278.96, or 2.7 percent, to 10,212.92. The index plunged 35 percent from the record of 15,676.34 on April 18. Losses have been even steeper in China and Vietnam, where stock indexes fell more than 48 percent in 2008, yet no violence ensued there.

Mobius Saw Risks

Pakistan stocks reached an all-time high two months after parties opposed to President Pervez Musharraf prevailed in a parliamentary vote and said they would try to form a coalition government. The election heightened the risks for investors, Templeton Asset Management Ltd.’s Mark Mobius said in February.

Regulators this week eased the curbs on trading after volumes fell to the lowest in a decade. The restrictions, including a ban on short selling, were lifted with effect from July 14 by the securities commission after the exchange announced a 50 billion rupee fund to buy stocks.
…The Karachi Index plunged this year on concern the ruling government coalition would collapse because of disputes between Asif Ali Zardari, co-chairman of the Pakistan Peoples Party, the biggest group in the ruling coalition, and former Prime Minister Nawaz Sharif. The leaders have failed to resolve differences over how to reinstate judges dismissed by Musharraf and whether the former army chief should be removed and stand trial.

Foreign investors slashed spending on Pakistani stocks to $62.2 million in the 11 months ended May 31, from $1.76 billion a year earlier, according to data compiled by the central bank.

Investors broke windows today in Karachi, threw plant holders in the parking lot of the building, burned shareholder statements and at least one protester was injured, prompting intervention by police and the paramilitary. Investors also protested outside the Lahore and Islamabad stock exchanges, Geo Television reported.

“We demand that all stock prices be frozen at current levels,” said Kauser Javed, who heads the Small Investors Association. “People have sold their assets in the last 15 days to meet payments and if things continue this way, you will start hearing of suicides. The regulators always favor big brokers and investors.”