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BOOM IS NOT FAR AWAY

  1. Disparity in import duty of palm oil
  2. The declining foreign investment
  3. Rupee volatility
  4. Boom is not far away
  5. Increasing domestic and foreign debt

THIS IS THE RIGHT TIME FOR INVESTMENT IN STOCKS

By AMANULLAH BASHAR
05 - 11,1999

The KSE-100 index, rising over the psychological barrier of 1,100 points on the weekend was a pleasant surprise, especially in the absence of a visible sign of improvement in the border situation.

The index gained 38.72 points on Friday to 1,104.83 from 1,066.11 of the previous session of Thursday taking the total volume to 148,733 million shares as against previous amount of 97,344 million shares. The unbelievable improvement in the market, according to a leading operator, was attributable to the buying rally joined by some of the major institutions.

Ali Raza Mooney, of Kausar Abbas Bhayani Securities, while commenting on the situation, said that beside the hope for a peaceful solution of the border conflict, policy measures for improvement in the financial sector announced by the government also helped toning up the spirits.

Mooney referred the recent announcement of the Securities and Exchange Commission of Pakistan (SECP) which has allowed foreign nationals and foreign financial institutions to invest in the shares of domestic commercial banks for trading purposes only.

He said the decision would help developing an atmosphere of healthy competition as well as professionalism among the local banks. The current level of foreign investment in the stock business, around 10-12 per cent, is likely to gain a momentum in the days to come.

The SECP announcement was in fact an outcome of an agreement signed between the Government of Pakistan and the World Trade Organization (WTO) on financial services. The agreement emphasizes that following market related conditions are, however, needed to be complied with.

The prior permission of the Central Bank (in writing) will be required by any person for holding beneficial ownership of five per cent or more of the paid up capital of any bank/financial institutions incorporated in Pakistan.

Foreign nationals and foreign financial institutions will be allowed to invest in the shares of domestic commercial banks for trading purposes only.

In order to comply with these requirements, the stock exchanges, listed commercial banks, listed financial institutions, the concerned company of Pakistan are directed to comply with the following directions:

*Any person, who beneficially acquires five percent or more of paid-up capital of a local commercial bank/financial institution shall be required to produce prior permission in writing of the SBP for transfer of the acquired shares.

Mooney, however, was critical of the restrictions of 5 per cent shareholding imposed by the SBP. The restriction may consequently stall the investment at a massive scale, specially by the foreign investors.

The SBP had asked all banks and non-bank financial institutions to ensure that no individual or institution holds more than 5 per cent of their total shares without the prior approval from SBP. The decision to allow foreign banks, institutions or individuals to invest up to 5 per cent or more in the paid-up capital of a local bank provided a prior approval in writing is acquired from the SBP, seems to provide a direction to the foreign investment in the domestic banks prior to their privatization.

In a way, the step was in right direction as far as diversification of the market base was concerned. However, restricting the size of the shareholdings at this stage when all out efforts are being made by the government to restore the confidence of the investors, looks premature.

"The existing market conditions, have to offer a promise of heavy returns to the sustainable investors of their shareholdings, as the features of the forthcoming developments have started to take a clear shape," said Mooney.

Sensing the change in the air, investors jumped into massive buying in Hubco, PTCL, Fauji Fertilizer and PSO shares at the last session of the week. Leading players at the stock market are anticipating that a peace agreement between India and Pakistan may prove the biggest equity trigger of the year. There is a feeling in the market that the expected normalcy accompanied by the financial reforms could push the index beyond its recent high of 1,416. The permission to buy back the treasury stocks given by the government in the federal budget last month has also started to show its results. A very few of the listed companies have offered to buy back their shares so far, however, a lot more in store has still to come.