During the past week Shaukat Aziz, Advisor to Prime
Minister for Finance and Economic Affairs came to Karachi Stock Exchange
(KSE) to join the celebrations. At the end of calendar year 2002, the
KSE not only surpassed its previous highest KSE-100 level but also
established new daily trading volume records. The KSE-100 index rose to
an all time high of 2,701.4 points at the end of year 2002. Other than
Shaukat Aziz, who else can feel so jubilant. He has played a very
important role in formulation of economic revival policies and
re-profiling of Pakistan's external debt. During this period the God
blessed Pakistan with many unusuals for which every one ought to be
thankful to the Almighty.
Since many critics are still skeptical about the
upward movement of the KSE-100 index, efforts were made by the Advisor
as well the Managing Director of Karachi Stock Exchange to put a
convincing argument in favour of sustainability of the bullish trend. It
is a fact that despite bearish trends prevailing in other leading
securities market of the world, the performance of local market has been
It is not a self-proclaimed pride but expressed
opinion of international experts. In September 2002, the Business Week,
a leading international magazine has written, "The best performing
stock market in the world this year in the Karachi Stock Exchange in
Pakistan". The USA Today also acknowledged this by writing,
"The Karachi Stock Exchange is one of the best performing bourses
in the world."
Shaukat's point was, "The unprecedented boom in
Pakistan's equities markets during 2002 is undoubtedly the results of
remarkable turnaround in the country's economy in general and external
account in particular. This is the dividend of our three years of hard
work, stabilization and structural reform measures undertaken during the
last three years have now brought the economy at the stage of
It is also a fact that despite a series of domestic
and external shocks such as the 9/11 incident and subsequent events, the
military buildup by India and unprecedented drought, confidence of
private sector has been restored to a large extent. This is event by
mounting remittances, virtually no flight of capital and massive
investment, exceeding US$ one billion, in textile sector alone.
The corporate earnings have also improved in the
backdrop of deregulation in the economy, lower interest rates, improved
aggregate demand and improvement in regulatory environment. The record
shows that 340 listed companies released their annual accounts up to
December 9, 2002. Out of these 234 companies posted profit and 104
incurred loss. Out of the profit making companies, 169 declared profit
and 65 preferred to skip dividend payment.
Moin Fudda, Managing Director of KSE presented an
elaborate comparison of performance of KSE with other leading markets.
His main thrust was that in declining interest rate scenario, equities
market offered attractive dividend yield. Higher liquidity and improved
corporate earning potential encouraged the retail investors to invest in
equities as well as fixed income securities. The level of confidence was
visible from over subscription of National Bank shares and TFCs offered
by various companies.
The market is now poised to test its next barrier of
3,000 points. The cynics have already started warning about a steep
decline once KSE-100 crosses 3,000 level. However, analysts say,
"so far the rally has been driven mainly by local retail investors
and also supported by institutional investors. Foreign fund managers
have not entered the market in a big way. The two factors, exchange rate
stability and earnings growth potential have now started urging the
foreign fund managers not to ignore Pakistan.
Investors may be worried about continuous upward
movement of the KSE-100 index and shrinking yield. Some analysts
forecast bullish sentiments to prevail in the long run.
Despite the shrinking dividend yield, the returns
offered by the listed companies are expected to remain higher than the
returns expected from other investments.
Pakistan market has witnesses a couple of crises in
the past. If the GoP is serious, one need no doubt, both the regulators
and players (brokers) should ensure that the risk management measures
are followed in letter and spirit.