KSE-100: NEW HEIGHTS
The KSE has definitely come along way performing better than many of its counterparts
By SYED M. ASLAM
Mar 29 - Apr 04, 2004
Friday March 19, 2004 was an eventful day for the Karachi Stock Exchange. It was the day the 100-Share Index broke the psychological barrier of 5,000 — 5,000.14 points to be exact. Needless to say, the long anticipated fete caused quite a pleasant commotion among the management of the biggest bourse of Pakistan evident from the hurriedly called press conference the very next day.
Highlighting the performance of the KSE, the Chairman of the bourse, Arif Habib, said the market capitalisation has depicted a 343 increase since December 2001 while there has been an equally impressive increase in 100-Share Index and listed capital — by 293 per cent and 54 per cent respectively during the same period. He said that the market capitalisation at the KSE has touched over Rs 1.3 trillion, $23 billion, and KSE would qualify for the listing on the emerging market index of the prestigious Morgan Stanley Capital International provided it sustains this level over the next 4 months. He also informed the press that the collective capital of the 690 companies listed at the KSE has touched Rs 362 billion and the daily turnover has touched Rs 14.7 billion mark.
The KSE, which takes pride in calling itself "The Best Performing Market", has definitely come along way performing better than many of its counterparts elsewhere in the world. But it has long way to fulfil the prerequisites to get listed on emerging market index of a prestigious Morgan Stanley Capital International. True that the KSE management has initiated and implemented a number of capital market reforms but there is much more to be done to get enlisted on the MSCI because the volume of market capitalisation is just one of the many pre-requisites that has to be met.
The challenges ahead for KSE to get listed on the MSCI's emerging market index were best highlighted by its Managing Director Khalid Ghayur at a seminar titled "Trends in Global Investing: Implications for Emerging Markets" organised by the Pakistan Chapter of Investment Professionals and the local chapter of the Association for Investment Management and Research. At the seminar held in Karachi on Friday March 26, Mr. Ghayur termed low volume of freefloat as the major hurdle for being listed on the MSCI's emerging market index.
He elaborated that one of the requirement for a company to get listed on the MSCI's index is it should have a minimum free float of $50 million, a prerequisite that entitles just 8 companies — PSO, Hub Power, PTCL, SNGPL, Engro Chemical, Fauji Fertiliser, MCB and ICI- that qualify for the listing on the MSCI Pakistan Index. He defined free floats as shares available for trading for the general public that excludes strategic shares held by directors, employees, associated companies and government. He also said that several companies in Pakistan have much lower free float because their weightage as just about 10 per cent of their shares are available to the public while the rest is held by the banks, the government, sponsors or big individual investors.
Calling low volumes of free float as the major constraint for low weightage in the world indices as the major constraint for the listing on the MSCI's emerging market index, Mr. Ghayur asked the regulators to persuade listed companies to enhance free-float substantially if they want to attract the foreign portfolio investment seriously. Most of all, he added, it is imperative to remain included in the prestigious index imperative for the international exposure.
He informed the participants of the seminar that Pakistan's current weighting in MSCI was 0.17 per cent and warned that it would slip further if large cap-listed companies do not increase their free float. He, however, did not mention what's the minimum weightage requirement of the MSCI for being listed on the its emerging market index saying only that it is much lower than both in the developed as well as the emerging markets. "In developed markets the freefloat is 86 per cent and in emerging markets it is 47 per cent while in Pakistan it is half of that of the merging market."
He said that though "Pakistan has been on the radar screen of international investors" it is not certain whether the interest would materialise into investment. He listed a number of other important factors for attracting foreign investment into an emerging market like Pakistan the foremost being substainable economic development that requires sound fiscal and monetary policies, market development and operational efficiency and easy access to foreign investors. He also said that other factors such as market capitalisation, size of companies, volume of free float, foreign ownership restrictions and liquidity play an important role to attract the attention of foreign investors.
He stressed that transparency and continuation of policies, simulation and sustainability of growth, fair and equal treatment to foreign investors at par with domestic counterparts and operational efficiency are the other factors that help encourage overseas investment in the local equity market.
The Managing Director of KSE, Moin Fudda, said that during his 18 months tenure as the management head, the KSE has undertaken numerous capital markets reforms and initiatives. "These economic and corporate reforms had helped lift market by as much as 300 per cent in 27 last months — 112 per cent in 2002, 65 per cent in 2003 and 13 per cent till now this year."
Mr. Fudda said that KSE would take all stakeholders into confidence to do whatever necessary to improve Pakistan's MSCI weighting. As mentioned earlier, much has been done but much remains to be done to ensure that KSE qualifies for the listing on the prestigious MSCI's emerging market index to help get a global exposure for investment. The weightage should be increased at par with the emerging markets and the issue regarding the freefloat should be accorded the top priority.