STOCK MARKET SUSTAINING PRESSURES
SHAMIM AHMED RIZVI, Islamabad
Nov 26 - Dec 02, 2007
It is a matter of pleasant surprise that despite political uncertainty, deteriorating law and order situation since March and recent recession in the global capital markets, the three stock markets in Pakistan have managed to remain almost unscratched. As a matter of fact the KSE 100 index boomed during the first few months touching the highest ever level of 13800 points in Aug 2007. Even after November 3 when the President and Army Chief imposed emergency, suspended the constitution and issued provincial constitution (PC) order followed by restrictions on media and large scale arrest of political workers, lawyers and even judges leading to a turmoil in the country, the capital market managed to recover after some initial shocks of over 800 points. It soon recover and KSC closed on 13570 points on Wednesday day (November 21) almost their apprised no improvement in the tension situation prevailing in the country.
According to market experts the stock market in Pakistan have so far survived all shock because of its strong fundamentals. However it the present political uncertainly and threatening long order situation persist in the wake of coming general election, capital market are most likely to suffer. What has happed so far is some what against normal behavior of the market in such condition, they maintain.
The finical year 2006 2007 can rightly be described as the most event full year because it market the 6th consecutive year of the bull run. The market capitalization grew by about 60% reaching the peak of about Rs 4 trillion. The reason for this buoyancy of the stock market as described in the economic surway of 2007 are 8 factors. These included continuous improvement in the country's economic fundamentals, government's commitment to its reform agenda and pro-market policies, stability in exchange rate, regionally cheap valuation of the scrips, large scale mergers and acquisitions, improving relationship with the neighbors, successful with the neighbors, successful GDR offerings and in crease in Pakistan's coverage by large international brokerage firms and investment banks.
In addition, Pakistan's privatization program also provided support to different sectors and corporate valuations. While nobody could possibly deny the positive impact of each of these factors, we feel that the biggest push to the market was caused by the interest shown by foreign investors with huge liquidity at their command, looking for investment opportunities throughout the world.
Foreign portfolio investment in Pakistan stock market during the first ten months of the past fiscal year amounted to $1.82 billion, which was the highest ever inflow of such investment in the country's history. Obviously, like other regional markets. Pakistan's equity market attracted a portion of increased liquidity flowing into Asia.
This could be confirmed by the fact that foreign funds hold 7.72 percent of the market cap, as against 3.28 percent in June 2006. The market cap includes the current foreign holding (adjusted for conversion) of MCB, OGDC, and UBL GDRs. One barometer of this is the Special Convertible Rupee Account (SCRA), which now stands at nearly one billion dollars compared to 350 million dollars a year ago. These include
(i) acquisition of Union Bank Ltd by Standard Chartered bank, (ii)acquisition of Prime Commercial Bank Ltd by ABN Amro,
(iii) acquisition of PICIC Bank by Tamasek of Singapore,
(iv) acquisition of Crescent Commercial Bank by SAMBA,
(v) acquisition of PakTel by China Mobile,
(vi) acquisition of further stake in Lakson Tobacco by Philip Morris. This M & A activity, which has taken place at very attractive valuations in the stock market as well. Peer group companies' stock prices have also reacted as a result of these acquisitions.
All these factors which contributed to the booming of the stock markets areno more available. Privatization programme is almost at a stand still to the last six months. Political uncertainty and deteriorating law and order situation is scaring way the foreign investors. Soaring oil prices and falling export have disturb the pace of economic growth. Alarming rise in the trade deficit is posing a serious threats to the economy. With all these negative factors, independent analysts fear, the capital market may not remain intact.
SBP GOVERNOR DR SHAMSHAD AKHTAR BRINGS HONOR TO PAKISTAN-APPOINTED AS THE CHAIRPERSON OF IFSB
Dr Shamshad Akhtar, Governor, State Bank of Pakistan has been entrusted with additional responsibilities as the Chairperson of the Islamic Financial Services Board (IFSB) for a one-year term beginning from January 01, 2008.
Dr Akhtar, who is currently the Deputy Chairperson, will be the 5th Chairperson of the IFSB Council.
The Council of IFSB in its 11th meeting held in Jeddah has also endorsed the appointment of Mr. Hamad Al-Sayari, Governor, Saudi Arabian Monetary Agency as Deputy Chairperson of the Council.
With Pakistan in the Chair, IFSB and SBP plan to hold the IFSB General Assembly and Council Meetings in Karachi from 25th to 29th March, 2008. The meetings will be preceded by a two-day seminar of the Third International Conference on "Islamic Banking and Finance: Risk Management, Regulation and Supervision" in association with Islamic Research and Training Institute (IRTI) and IFSB on 24th-25th March, 2008. The meetings will be followed by a public lecture with representatives from leading financial sector organizations on themes of financial stability.
The Islamic Financial Services Board (IFSB) is an international standard-setting organization that promotes and enhances the soundness and stability of the Islamic financial services industry by issuing global prudential standards and guiding principles for the industry, broadly defined to include banking, capital markets and insurance sectors. The IFSB is effectively contributing towards the promotion and development of a prudent and transparent Islamic financial services industry through introducing new or adapting existing international standards consistent with Islamic Shariah principles. The IFSB also conducts research and coordinates initiatives on industry related issues, as well as organizes roundtables, seminars and conferences for regulators and industry stakeholders.
It may be pointed out that the IFSB membership has continued to attract interest from international regulatory and supervisory institutions.
The 11th Council meeting has resolved to admit 13 new members to the IFSB bringing the total members to 150. The newly admitted members include Bank of Mauritius and Hong Kong Securities and Futures Commission, which joined as Associate Member and Observer Member, respectively. The Council also admitted 11 other new Observer Members from among the financial market players.
The IFSB members now total 150 comprising 37 regulatory and supervisory authorities, 5 international inter-governmental organizations and 108 market players and professional firms operating in 31 jurisdictions.