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  5. PAKISTAN AND OTHER STOCK MARKETS IN 2001.                                    

Excerpts from an exclusive interview with Salim Chamdia, Chairman, Karachi Stock Exchange

Jan 14 - 20, 2002

Salim Chamdia has been elected as the youngest Chairman of Karachi Stock Exchange, at the age of 37 years. Chamdia is a Chartered Accountant and one of the active and prominent members of the Exchange since 1991 and has held a number of important offices, initially as a Director in 1993, Honorary Treasurer in 1994 and Vice President in 1997. He was also elected Vice Chairman of the Exchange for 1999 and 2000. During his tenure as Vice Chairman, he was also responsible for Information and Technology Committee. He was the team leader for various IT related projects particularly computerisation of major areas of operations & trading, clearing and settlement and market information systems. Presently, he is Chairman and Chief Executive of Salim Chamdia Securities, a corporate member of the Exchange.

The year 2001 was proved to be very difficult for the securities markets around the world due to fear of US-led global recession and the disaster at the World Trade Centre and Pentagon on September 11, followed by ongoing tension on our eastern borders. However, in view of a number of positive developments, both internationally and locally which, inter alia included assistance from donor countries, removal of international sanctions imposed after the country went nuclear in 1998 as well as successful negotiation with Paris Club relief on the debt issue, financial assistance approved by the Asian Development Bank and announcement of economic packages and financial commitments by a number of developed countries besides the decision of the European Union about the removal of duty on many Pakistani value added projects, I am very much optimistic that the market will see better times during the current year which will be a turning point for our market and the economic revival of the country.

The year 2002 has started with great hopes and KSE-100 index has started registering upward movement. While some analysts express their apprehensions about the sustainability of this trend, most probably they do not take into account the economic fundaments. Re-profiling and restructuring of external debt has improved sovereign rating of Pakistan. The European Union has withdrawn duty on many value-added products of Pakistan and also enhanced Textile Quota by 15 per cent. All these factors will usher in a new era of enhanced economic activities in the country and a direct and positive impact on equities market.

While prices of volume leaders and their daily trading volume is expected to improve, enhanced activity in consumer goods, cement, and textile sectors will also be witnessed. This is not an statement only, sound economic fundamental and emerging trading pattern also confirm this. Though, one may argue that synchronised global recession has dampened the outlook for textile sector, this is the appropriate time to go for expansion and BMR for achieving higher value addition. Pakistani manufacturers of textiles and clothing have to get ready to face competition after December 31, 2004 when there will be no Textile Quota.

Performance of cement sector was dismal in year 2001 mainly due to low off take and high fuel cost. Commencement of process of reconstruction and rehabilitation in Afghanistan, funded by international agencies and fall in furnace oil prices, offers opportunity to Pakistani cement manufacturers to improve capacity utilisation by exporting cement. Pakistan enjoys the advantage of proximity of location and road links. It is an edge over other countries, but price of cement has to be competitive. The GoP must resolve the outstanding issues faced by cement sector to improve its competitiveness. Export of cement will improve the capacity utilisation, which will optimise the cost of production. Lower prices of cement will also provide a boost to local construction industry.

The Karachi Stock Exchange appreciates the efforts of present economic managers. In my own view also support by other colleagues, the GoP must reintroduce the policy of imposition of 10 per cent tax on excess reserves and exempt tax on bonus shares. TFCs issued before 30, June 2001 should continue to remain exempt from tax. Capital markets play an important role in resource mobilisation. Therefore, capital formation should not be taxed, rather the GoP should provide more incentives for capital formation for increasing productive facilities in the country. Enhancing economic activities is the best way for poverty alleviation.

The Karachi Stock Exchange believes in self-regulation. I have proposed to the Board of Directors to implement grand trading system and introduce Internet based trading. Shortly we will also undertake programme for promoting the equities culture and investors' education. We want to restore the confidence of investors in equities market, which offers attractive dividend yield.

Similarly, efforts are underway to provide a simple and expeditious procedure for resolution of investors' complaints. During the year we will be also reviewing our Rules & Regulations and more consentration will be placed on strengthening the Listing Regulations so that listing of only quality companies is ensured. Improvement in the physical infrastructure of the Exchange building is another important area which will include in our agenda for the year. However, we plan to take various steps for the improvement of corporate governance. Though, number of TFCs have been listed in last two years, the number of new listing has remained very low.