LEAD FROM INSTITUTIONAL INVESTORS
Excerpts from an exclusive interview with Arif
Habib, Chairman, Karachi Stock Exchange
By SHABBIR H. KAZMI
Nov 27 - Dec 03, 2000
Since January this year KSE-100 index has lost
around 100 points. It is heartening to note while most of the stock
exchanges in the region have registered over 15 per cent erosion in
market capitalization during this period, Karachi Stock Exchange has
not experienced the identical trend. Even after the May Crisis, though
there has been reduction in trading volume, the erosion in prices is
due to other factors, i.e. continuing IPPs dispute, inability of the
GoP to conclude a long-term financing arrangement with the IMF and
cost pushed inflation affecting profitability of listed companies.
Referring to the efforts made by the Karachi Stock
Exchange (KSE) to minimize impact of May Crisis, Arif said, "It
needs to be brought on record that the changes made in the Rules and
Regulations regarding exposure limits of brokers were in the larger
interest of the market participants and investors. The initiative
taken by the KSE and its handling of the crisis must be appreciated.
Had the timely changes were not implemented the magnitude of losses
would have been much higher."
There has been constant erosion in market
capitalization at KSE, Arif attributes this phenomena to a number of
other factors besides May Crisis. He said, "Market players had
expressed apprehensions when the market was around 2000 points in
March/April. They expected a correction of 300 to 400 points. The
speculative buying and price manipulation, by some Lahore based
brokers/investors, changed the entire complexion of the market.
Despite the efforts of LSE management to minimize the impact of
inability of some of its members to honour timely and fullest
settlement, the spill-over had a negative impact on KSE-100 index. The
situation is expected to linger on for some time as the investors
confidence in equities market has been shattered. However, I strongly
suggest that retail investors should act more prudently than following
herd-mentality. They should learn to differentiate between price
manipulation and price change due to improvement in economic
fundamentals for a company."
Arif has his reservations regarding the attitude of
institutional investors in Pakistan. He said, "Contrary to the
global practice of buying when prices are low, institutional investors
in Pakistan accumulate when share prices are moving upwards. I believe
that the role and attitude of institutional investors should not be
that of an speculators aiming at making immediate capital gains."
The number of companies declaring dividend used to
be relatively low in recent past. However, in last couple of years,
not only the number of companies declaring dividend has increased,
there has been improvement in payout also. However, the market is not
fully responding. Arif attributes this to: depreciation of Pak rupee,
higher interbank rates and delay in arriving at a long-term funding
arrangement with the IMF by Pakistan.
While Pakistan is also going through the crisis
faced by many other non-oil producing countries, the situation is more
alarming due to widening balance of trade gap, cost pushed inflation
and prospects for not being able to meet budget deficit target for
longer term financing arrangement with the IMF. This would also affect
the GoP's ability to reach a resolution with HUBCO — a factor which
has been responsible for lower influx of foreign direct investment and
portfolio fund into Pakistan.
To conclude Arif said, "The improved market
efficiency and transparency depicts greater confidence of retail
investors in Pakistan's equities market. Out of the three recent
public flotations two were fully subscribed/over subscribed. I would
also say that involvement of large scale retail investors has
compensated, to a large extent, for the lack of interest of foreign
portfolio funds. However, Pakistan's equities market look attractive
at current prices. A higher dividend payout for the year ending June
30, 2000 is expected to once again attract the attention of market
participants. There is a forecast that Pakistan would be able to
conclude a long-term funding agreement with the IMF, on better terms
and conditions, and resolve IPPs crisis."