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Rescue           fund for Stock Market

President urged the officials to keep a close watch on the developments

From Shamim Ahmed Rizvi, 
Islamabad
Aug  20 - 26 , 2001

A rescue fund from Rs. 3 billion to 4.5 billion is being created in a week's time to bolster the country's depressed stock market. The fund which will be managed by a Committee of experts who will constantly monitor the ups and down in the bourses and invest in selected scrip to keep the market at its normal level. The investment will be made through National and Habib Bank of Pakistan who will be the custodian of the fund.

This decision was taken at a high level meeting chaired by President Gen. Pervez Musharraf with Ministers of Finance, Commerce, Privatization and Chairman Security and Exchange Commission of Pakistan. The meeting was a follow up of briefing to the President by the Privatization Commission (PC) a few days earlier on the sale of PTCL, UBL and NIT. It was felt that the lowest over prices of these scrips prevailing presently in the stock market may hamper PC's efforts to secure a reasonable return. According to the experts the sudden fall in the prices of these scrips appeared manipulated as there was no cogent reason or plausible explanation for this depression. The proposed fund, apparently recommended by some Ministers and supported by experts, is being created to stabilise the stock market.

It was felt in the meeting that there were significant investment opportunities in the stock market as the key stocks were highly under valued and therefore there was an urgent need of providing some institutional support for the market. According to a source the meeting was informed that foreign investors had pulled out substantial amount from the stock markets. The foreign investment in Pakistani scrip has come down to present 150 million US dollars from 1.5 billion a few years back.

The meeting was informed that public sector institutions have decided to undertake the initiatives of providing necessary support by pooling their resources and focusing on a blue chips shares considered highly undervalued compared to their earning potential. "This support will help stabilize the market and will be forthcoming quickly to take advantages of attractive value, which exist in the blue chip stock in the stock market. The support by public sector institutions will follow professional investment and fund management procedure," the meeting observed.

According to official sources, the meeting was also informed that the Asian Development Bank (ADB) has engaged international consultants for the preparation of agreed second capital market development programme loan of $ 250 million to improve the capital market of Pakistan.

This second programme would focus on furtherance of the already ADB-funded programme for the capital market. The ADB has sponsored $ 250 million in the first phase while the EXIM Bank of Japan has provided $ 250 million loan for the first phase programme. The first parse started in 1997 to introduce the capital market reforms and was completed in June, last year. Under the second phase of capital market development programme loan, the bank seeks to create greater depth in Pakistan capital market.

At the moment, Pakistan does not have the medium or long-term capital financing for the sector and this programme would strengthen the local stock market. The sources said that after the completion of the studies by the international consultants, the agreement for the capital market loans would be signed.

Meanwhile an official handout about the meeting said the public sector institutions have decided to undertake the initiative of providing the necessary support by pooling their resources and focusing on a few blue chip shares considered highly undervalued as compared to their earning potential. It said that the support will be coming quickly so that it takes advantage of the attractive values which exist in the blue chip stocks.

The handout said that the President underlined the significance of the stock market and urged the officials to keep a close watch on the developments. He said the process of stock market reforms should be advanced while forging partnerships and securing support from all the stakeholders.

It further said that the meeting viewed that the recent slowdown in the market was due primarily to the withdrawal of some foreign funds from the market as well as the global nervousness, with the emerging markets stocks being faced by several markets. The handout said there were significant opportunities in the market as the key stock were highly undervalued and the need, therefore, was for providing institutional support.

The source said that the chairman of the Securities and Exchange Commission of Pakistan (SECP) briefed the meeting about the market situation and the reforms undertaken by the SECP. The chairman suggested that as a long-term measure to stabilise the market the SECP would continue to introduce reforms.