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1- NEW INITIATIVE IN PRIVATIZATION AND INVESTMENT
2- REVENUE COLLECTION FOR THE FIRST SIX MONTHS
3- PAKISTAN: THE BEST PERFORMING EQUITIES MARKET
4- NATIONAL SAVING SCHEMES
5- TRANSFER PRICING BY MNCS
6- NPV: METICULOUS MEASURE OF PROJECT EVALUATION?

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PAKISTAN: THE BEST PERFORMING EQUITIES MARKET

 

It is not a self-proclaimed pride but acknowledged opinion of international experts

 

By SHABBIR H. KAZMI
Jan 13 - 19, 2003
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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 exceptional.

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 take-off."

 

 

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.