The US Federal Bureau of Investigation has been credited with indirectly contributing to the bull market on Pakistan's stock exchange through its crackdown on terrorist funds.

Despite plummeting stock markets around the world and domestic instability the Karachi Stock Exchange (KSE) has risen over 58% since last September.

We haven't seen the big Arab investors coming in yet, but when that happens the market can really go up

Yasin Lakarn Former KSE chairman

The Pakistani diaspora has been sending money back home because the FBI treats their legitimate investments abroad with suspicion.

"With the FBI crackdown, the ordinary Muslims feel they were being treated with suspicion," said the former KSE chairman Yasin Lakarn.

"There are South Asians with some savings stashed abroad as a safety net. That safety net is now punctured by the FBI."

Capital flight

The repatriation of capital reverses years of outward investment and foreign reserves have hit $7bn from $1.8bn before 11 September.

Mr Lakarn said the millions of Pakistanis employed or engaged in businesses abroad are the main source and that there is little real "foreign" money flowing into the country.

"We haven't seen the big Arab investors coming in yet, but when that happens the market can really go up," he said.

The KSE-100 index has risen from 1,133.44 in September to 1,794.86, a 58% jump, compared with a rise of 15% by India's Bombay Stock Exchange.

The weakening US dollar has also contributed to the rise as investors bail out of dollar denominated funds to buy shares which offered a better return.

"Pakistani companies still offer 15% to 16% yield and it makes sense to put money in the stock market when bonds and term deposits actually may pay you less than the inflation rate," he said.

Lower interest rates on domestic savings have also triggered a shift to equities.

Violence factor

Mr Lakarn believes tensions with neighbouring India were already factored into the KSE prices by Pakistani investors, as were recent bomb attacks against foreigners.

Eleven French naval engineers died in a car bomb attack in May, five people, including a US embassy official's step-daughter and wife, died when a church inside the diplomatic compound was bombed in March, and US journalist Daniel Pearl was kidnapped in January and later killed.

Last month, the US consulate in Karachi was bombed, leaving 12 Pakistanis dead.

The military government of President Pervez Musharraf has said the soaring share prices are due to its economic policies since seizing power in a coup in October 1999.