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An interview with Chairman, SECP

From SHAMIM AHMED RIZVI
Islamabad
Oct 29 - Nov 04, 2001

"The present upsurge in the stock market is not a speculative bubble through over trading like May 2000. It is genuine rise and is likely to sustain itself ''

This observation was made by no less a person than the Chairman, Securities and Exchange Commission of Pakistan (SECP), while talking to this correspondent in an exclusive interview for PAGE.

 He said that a positive movement in the stock market was due because it had been under bearish trend for a longtime. The market was improving quickly as yields were high and the investors were now feeling more confident because of the reform measures taken by the SECP and the tight regulatory framework and close monitoring of the stock markets. This has also attracted the fund managers towards Pakistani Markets. Expatriate Pakistanis have started bringing money and the institutions have also joined in, he said, adding that the first phase of capital market reforms was very encouraging. The SECP was however, watching the situation very carefully but there appeared no need to take any further step in the near future.

Replying to a question regarding likely impact of September 11 events in the United States, Mr. Khalid A. Mirza, said that the impact of this tragic development and its aftermath was felt all over the world and Pakistan was no exception. Despite being on the frontline, however, Pakistan did not shape very badly by loosing about 13 per cent of its stock market index as against an average of over 15 per cent in other Asian Markets.

The market remained closed for an entire week (Sep 17-23) as the three Stock Exchanges in the country unanimously took the decision. It is always better to close the market if there is destabilizing event. The most important factor behind the closure of the market for all five working days of the week, he said, was the withdrawal of carry over or Badla trade financiers which effectively threatened to destabilize the market. While Badla financing needs had doubled the major financiers were not coming forward and this was really upsetting the market. The SECP addressed this question of Badla financing with the State Bank of Pakistan and five major banks of the country. The role played by National, Habib, Muslim, United and Allied Banks, was commendable as they injected over Rs 3 billion into market as Badla financing. That was felt sufficient to reopen the market on September 24 along with a 5% circuit breaker and a complete ban a blank selling.

Continuing Mr. Mirza said that SECP, however, had always felt that this decline was cyclical and the market would soon start consolidating. From a regulatory point of view market was on sound footing as the reforms initiated by the Commission were proving effective. These expectations proved correct. Yesterday's index was 1400 points with highest turn over during the last 3 years. The market has gained 340 points which is far more than it lost in the first four weeks. Stock markets are mainly driven by sentiment and psychology. The contribution of economic fundamentals in the rise or fall of stock markets is really not more 10 to 15 per cent. At present, Pakistan's image in the international community has improved, the rupee has appreciated, dedollarisation is in evidence, the State Bank has reduced discount rate. All these developments have contributed to bullish sentiments.

The Chairman SECP disclosed that Pakistan was expecting very shortly around $250 million from the Asian Development Bank (ADB) under the "capacity building for capital market and corporate governance programme". This can go up to $300 million depending on the deliberations that take place but at the moment we expect an amount of $250 million. The ADB consultants were here recently and finalized a study. They would undertake another study and then develop contours of the programme defining various steps and measures. This would be followed by discussions with authorities in Pakistan and then the approval process, said Mr. Mirza expecting the whole project being completed in not more than six months.

The Chairman SECP who is also the regulator of insurance sector in Pakistan said that as a result of events of September 11 in the United States, several business houses have suffered huge losses among these insurance companies are of the major affectees as the international companies have stopped providing reinsurance cover to the insurance companies in Pakistan. SECP has taken serious notice of the situation and held a detailed discussion on all the issues in a meeting with the Chief Executives of the insurance companies operating in Pakistan. As a result, a four member task force has been appointed to look into the problems faced by the insurance industry on account of recent decisions of the international insurance companies and submit its recommendations/report by November 10 positively. The task force which is headed by Mr. Kamal Afsar, Chairman Pakistan Reinsurance Company Limited has been asked to submit a workable, cogent plan of action by November 10. It is too early to say what specific measures may be proposed but I have been assured full support from the Government for this rescue operation, he added.