Proposals in new budget will likely favor the Pakistan Stocks Exchange
Interview with Mr Humayum Javed — CEO, WE Financial Services Limited
Humayun Javed, Chief Executive Officer, WE Financial Services Limited is a seasoned capital markets expert and portfolio manager with a wealth of over 25 years of experience in banking and corporate finance, financial and stock markets of Pakistan. Humayun graduated with BBA (Honours) from Michigan, USA in 1993. He joined Deutsche Bank AG-Pakistan in 1993 and moved on to lead WE Financial Services Limited, a TREC Holder of Pakistan Stock Exchange (PSX) in 1997, diversifying its growth through Investment Advisory, closed-end mutual fund management and Commodities brokerage. Over the years, he has attended numerous seminars and conferences on Core Banking, Economy, Capital Markets, including the prestigious Euro Money Conference. He has added many milestones in his career, through his active involvements in policy making committees of PSX and played his role in introducing various official products over the last decade. Amongst his other professional engagements, Humayun served as Chairman of the Board of Directors of Dawood Family Takaful Company (2009-10), one of the largest Takaful companies operating in Pakistan. He is presently serving as Vice Chairman — Standing Committee on Chemical Sector, Federation of Pakistan Chambers of Commerce and Industry (FPCCI).
Following are excerpts from an exclusive interview with Mr Humayun Javed:
PAGE: How do you review performance of Pakistan Stock Exchange during the first nine months of current financial year?
Humayun Javed: The benchmark KSE-100 Index has remained range-bound throughout the period and upward momentum was constrained reflecting concerns over the precarious balance of payments situation amidst rising international crude prices and import bills as well as rising external debt raised a caution. We expect the market to remain in check in the foreseeable future as in addition to somewhat disturbing macroeconomic indicators, investors are watching out for political stability and smooth democratic transition post scheduled elections. A major task lies ahead in terms of implementing structural reforms and policy framework to be able to meet the challenges and sustain the economic growth momentum.
PAGE: What other factors are keeping the market under pressure?
Humayun Javed: Evidently major factors hampering market growth are high taxation and regulatory burden. Any reduction in the tax rates will increase the number of investors, which will have an incremental impact on turnover and ultimately, will result in increased earnings for the Federal Government. For example, it has been identified that capital gain tax (CGT) collection was Rs18.2 billion in the mid of 2017, which reduced to Rs1.2 billion in Feb 2018, as a result of increase of tax rates.The burden of rules and regulations should also be reduced, because it serves an incentive for new enlistment of companies, which would increase the performance of PSX. On the broker level, reduction of such burdensome rules, regulations and compliance requirements, will give more opportunity to the brokers to concentrate on increasing their business.
PAGE: Year 2018 is election year, how is market expected to behave?
Humayun Javed: With the target GDP of approximately 6.2% set by GoP, to achieve this target, there seems to be a general decrease in the tax rates and increase of the tax net. Any tax reduction, will have an inversely proportional effect on the number of investors and the size of investments in the stock market. Similarly, I believe that the upcoming budgetary proposal will be generally in favor of the stock market.
PAGE: Which is more contentious issue, balance of payment crisis or political uncertainty?
Humayun Javed: Both the balance of payment crisis and political uncertainty are contentious issue, but I believe balance of payment would induce the political pressure. According to SBP the current account deficit has widened and it has reached to approximately US$12.03 billion during the first nine months of current fiscal year as compared to US$7.99 billion of deficit same period. In layman terms, an increase in the circular debt holds a systemic risk which can dangerously affect the very foundation of our economy, repercussions of which will be drastic and long-term.
PAGE: Has recent depreciation of Pak rupee helped in attracting foreign investors.
Humayun Javed: Depreciation of Pak rupee is one of the reasons which have attracted foreign investors. In the last 3 quarters, foreign participation increased, which helped the Index to increase by 20%, while the rupee devaluated by over 9.5% against US dollar. The participation of foreign investors was in net buy of US$31.258 million in the last three months, while they had opted to sell US$ 8.007 million in the third quarter of 2017.
PAGE: Why the new number of listing is dismal?
Humayun Javed: It is an interesting question. A new listing is always welcomed by brokers, investors and the Exchange. However, in recent years, general rules and regulations have been revisited and revised. Similarly, higher corporate tax rate for listed companies, taxation on cash and stock dividend payout has also put off new listings.
PAGE: Do you subscribe to the proposal that corporate tax on listed companies should be reduced to 25%?
Humayun Javed: Any reduction in liability is money earned. The proposal, if accepted, will not only induce fresh enlistment, but will increase the probability of higher corporate payouts. The whole exercise is not only in line with international best practice, but will have an overall positive impact on the economy of our country.
PAGE: What is holding the Government of Pakistan from listing of State Owned Enterprises on local bourse?
Humayun Javed: There could be a number of reasons for the Government of Pakistan to opt out of listing its entities. The general perception is that scrutiny of corporate performance and dissemination of information as per the listing rules and regulations can be attributed to the decision of staying away from listing at the moment.