Dec 6 - 12, 20

Globally, stock markets are termed the barometer of an economy but some experts do not think it is true for Pakistan. However, no one can deny the fact that bourses help in mobilising much needed capital for long-term investments. It is the ease that enables any investor to take a position or an exit depending on his/her investment perspective. The more efficient are the markets the easier it is to enter or quit.

A closer look at the Karachi Stock Exchange indicates that over the last five years quantum of listed capital has increased to Rs915 billion from Rs519 billion, though the number of listed companies reduced to 645 from 652. Market capitalisation having touched Rs4,330 billion in 2007 plunged to Rs3,039 billion in November 2010.

A heartening point is that listed companies enhanced their capital by more than Rs100 billion but only Rs33 billion came from listing of six new companies and the remaining came from issue of bonus and right shares. However, issue of debt instruments was rather slow. Having witnessed issue of seven debt instruments in 2008 amounting to Rs26,500 billion, only four instruments were listed during 2010 amounting to Rs5,650 billion only.

Many overseas funds and investors dipped their toes into Pakistan's equity market in late 2006 after the economy grew by an average of seven percent for a number of years, fueled by liberalisation of the banking sector and a consumer-spending boom. In late 2006, state-owned OGDC raised more than $800 million through a listing at London of 10 percent of its shares—the largest initial public offering of a Pakistan company in more than a decade.

Foreign investors poured $2.3 billion into the Karachi Stock Exchange in the fiscal year ended June 2007, more than six times higher than the previous year. But Pakistan's economy began to unravel in 2008, causing runaway inflation and a growing current account deficit. The country, which relies on expensive imported oil, faced regular electricity shortages that clouded the economic picture.

The market regulator imposed trading curbs between August and December 2008 in an attempt to halt the slide, but the measures had little effect. In the year ended June 30, 2009, foreign investors pulled $511 million out of Pakistan's market. Average daily trading values on the Karachi Stock Exchange also plunged to less than $120 million, down from $400 million in 2007. However, foreign portfolio investment flows have turned positive in recent months as the government under its IMF program has succeeded in keeping the current account deficit under control. The country is likely to get $500 million by end CY10 and more than double this amount during CY11.

Lately foreign investors have shown exceptional interest in Pakistani stocks, setting the market up for its second-best year for inflows in a decade, drawn by cheap valuations and some economic and security improvements. Such investments may be paying off as well because Karachi Stock Exchange is one of the few markets in Asia showing a rise for some time. "Pakistan remains one of the cheaper markets in Asia and emerging markets with an improving domestic situation and a stabilising economy," said Mark Mobius, executive chairman at Templeton Asset Management some times back.

It is true that the present government in its two and half year regime has not been much successful as compared to the previous government. However, it is also a fact that during this period developed economies have also been confronted with their own problems. Therefore, it may be said that the fault was not totally of the government. However, it may be said that the shares of SOEs listed at Karachi Stock Exchange could have been offered though secondary offerings.

Reportedly, the government aims at selling off loss making SOEs in an attempt to contain losses amounting to Rs300 billion per annum. Privatisation of KESC was also part of this strategy. However, the transaction has only attracted criticism, despite the fact that the foreign strategic investors have made substantial investment in the problem ridden utility. However, the blame of failure in turning around the company goes to the government, which has not been able to extend support to the strategic investors in containing transmission and distribution losses and recovery of long outstanding receivables.


5 YEARS PROGRESS 2006-2010

Total No. of Listed Companies 652 654 653 651 645
Total Listed Capital in Rs. 519,270.17 671,255.82 750,477.55 814,478.74 914,529.06
Total Market Capitalisation - Rs. 2,771,113.94 4,329,909.79 1,858,698.90 2,705,879.83 3,039,628.24
KSE-100TM Index 10040.50 14075.83 5865.01 9386.92 11135.34
KSE-30TM Index 12521.54 16717.10 5485.33 9849.92 10755.84
KSE All Share Index 6770.06 9956.76 4400.76 6665.55 7744.15
New Companies Listed during the year 9 14 10 4 6
Listed Capital of New Companies in Rs 14,789.76 57,239.92 15,312.12 8,755.73 33,438.45
New Debt Instruments Listed during the year 3 3 7 1 4
Listed Capital of New Debt Instruments in Rs. 3,400.00 6,500.00 26,500.00 3,000.00 5,650.18
Average Daily Turnover - Shares in million 260.69 268.23 146.55 179.88 131.80
Average value of daily turnover in Rs. 31,610.71 25,262.97 14,228.35 7,450.75 4,309.91