KSE: GOOD PERFORMANCE

From SHAMIM AHMAD RIZVI,
 Islamabad

Apr 26 - May 09, 2004

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 turnover.

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 heights.