An impressive presentation about the success story of
Karachi Stock Exchange (KSE) and its promising future was given by KSE
chairman, Arif Habib before a select gathering of diplomats,
representatives of foreign investors in Islamabad on Thursday last.
Chiefs of Lahore and Islamabad Stock Exchange were also present besides
the chairman and seniors officials of the Securities and Exchange
Commission of Pakistan (SECP) on the accession which kicked off the
process of attracting foreign investors. Mr. Arif Habib envisioned a
bright future for the capital market in Pakistan on the basis of
continued real growth in corporate earnings, privatization, low interest
rates, increase in development expenditure and Pakistan being a part of
international community after recent floatation of euro bonds.
The Finance Minister, Shaukat Aziz who was to provide
over the function could not make it. In his message which was read out
by his Additional Secretary, Mr. Ismail Qureshi, the Finance Minister,
Shaukat Aziz, urged the private sector to avail itself of the prevalent
conducive environment and participate in the future economic progress of
the country. Over recent years, the minister said, the Pakistani capital
market had witnessed phenomenal growth as illustrated in the spectacular
performance of the KSE 100 Index which had now crossed 5400 points which
is more than double to that of January 2003. The market capitalization
had improved from Rs. 595 billion to Rs. 1.4 trillion, depicting a
growth of 141 percent.
He appreciated the performance of Securities and
Exchange Commission of Pakistan that had introduced groundbreaking
reforms in the fields of risk management, governance, transparency and
investor protection. These had contributed significantly towards the
growth and development of capital market and upsurge in investor
confidence, Aziz remarked.
The minister also commended the stock exchanges
because they had shown vision by whole-heartedly accepting and
successfully implementing the reforms. As a result of the reforms, he
added, the Pakistani capital market was ranked as one of the best
performing markets in the world.
The Chairman SECP, Dr. Tariq Hassan, gave an overview
of the major reforms undertaken by the commission since its
establishment four years ago. He began by outlining the investment
policy of the government that, inter alia, allowed foreign investors to
operate freely in the capital market.
Characterising the SECP's regulatory policy as
"efficient and cost effective", he said, the SECP did not
merely play the policeman's role but also focused on development and
facilitation of the capital market. The SECP, had implemented a reform
programme to address numerous distortions in the capital market and the
corporate sector with a view to evolving a fair, transparent and
efficient market that engenders investor confidence. At the same time,
he said, the SECP ensured stringent enforcement to curb market abuses,
particularly, in the securities market.
Dr. Tariq Hasan said that the recommendations of the
experts committee on de-mutualisation of stock exchanges will be
implemented by the end of year as a part of ongoing capital market
reform process. The carry Over Transactions (COT) will be phased out by
the end of current year, Hasan added. For the development of enabling
environment of cross border listing of scrips, SECP has been engaged in
consultation with the SAARC corporate regulators. In this regard, a
Memorandum of Understanding (MoU) has been signed with Sri Lanka's
corporate watchdog, he added.
Under the reforms, SECP is focusing on rotation of
auditors, risk mitigation measures such as phasing out of carry over
transactions (COT) and institutional strengthening of risk management
measures included changes in the exposure regulations and valuation
policy for deposits.
Outlining future reforms agenda, Dr. Tariq stated
that these reforms included code of corporate governance for unlisted
public companies and statutory corporations, enhancement of monitoring
and surveillance to prevent and remedy market abuse, corporate social
responsibility (CSR) and re-regulate corporate sector to achieve policy
objective of efficient and cost effective regulations.
Presenting the performance of KSE, Chairman Arif
Habib said Karachi Stock Exchange has shown remarkable performance
during the last two years. He said during the last two years, KSE showed
21 percent increase and is contributing 80 percent of the country's
KSE Chairman told the diplomats that the exchange is
taking active measures to increase the retail investors' base in the
country. The interest of local people in the stock markets is increasing
which would ultimately bring foreign investment in the capital market.
The examples of OGDCL and SSGCL clearly reflect confidence of local
investors in the stock market. There is a huge potential of investment
in the capital market, he emphatically said. He informed the
participants that the KSE index was at 1200 points when the General
Pervez Musharraf took over. However, the continuation of economic
policies has moved the index to 5500 points.
Arif Habib also highlighted profitability record of
foreign companies in Pakistan. He said KSE has been providing fully
automated trading, clearing and settlement facilities to the investors.
He pointed out that KSE index touched an all time
high at 4604.02 on September 12, 2003 in addition to a historic high and
record turnover of over a billion shares on a single day on August 08,
2003. The year 2003 started with KSE 100 index at 2701.42 and closed the
first quarter at 2715.72. The upward trend continued in the second
quarter as well with the index closing at 3402.48 on June 30, 2003.
During third quarter, the market witnessed and exceptional upbeat tempo
and finally ended at 4027.34. During 2003, the market capitalization,
which stood at Rs. 595 billion on December 31, 2003, increased to Rs.
904 billion on October 10, 2003 after touching over Rs. 1019 billion,
showing a net appreciation of Rs. 309 billion. The average daily
turnover has also recorded considerable improvement at 340 million
shares as compared to 167 million shares in last year.
Arif Habib attributed KSE's strong performance to
macro-economic stability, foreign currency reserves, stable rupee,
direct investment and impressive inflow of foreign remittances
increasing by 77 percent from $ 2.4 billion in 2002 to $ 4.2 billion in
2003. Responding to a question floated by one of the diplomats, Arif
Habib said the government is actively engaged in conducting road shows
on privatisation and attracting investment in the stock market.
In his presentation, KSE Managing Director Moin M.
Fudda told the diplomats present at the occasion that there are many
factors that investors consider after evaluating attractiveness of an
emerging market. These factors encompass economic development,
operational efficiency, timely settlement and surety that the money
would be back with profit.
He said the continuation of the economic policies
from December 1999 has played a key role in the positive development at
the stock exchanges. Key factors of reforms are corporate reforms, code
of corporate governance, timely holding of AGMs, T+3 settlement system,
undisclosed trading, CDC, live quotes of scripts on mobile phones,
display on terminals, risk management, marketing and research department
and education to the investors.
Giving presentation on the challenges ahead, Moin
Fudda said there is a need to list more companies at the KSE. The new
companies would be attracted as prices of scrips have gone up. Another
challenge is the cross border listing possibilities with India and there
is a challenge to phase out carry over transaction (COT) with margin
financing and strengthening risk management. He also elaborated reasons
for the surge and crash of the KSE during the last many years. The
nuclear test conducted by Pakistan crashed the market, but the economic
reforms initiated by President Pervez Musharraf took the market to new