Business Updates

KSE directed to establish unified trading platform.

ISLAMABAD (June 01, 2009): The Competition Commission of Pakistan (CCP) has directed Karachi Stock Exchange (KSE) to establish a Singular Unified Trading Platform for the central execution of the trading orders of all the stock exchanges within six months period.

Big investment potential in banking sector: Governor SBP

Governor of State Bank of Pakistan (SBP), Syed Salim Raza, has said that Pakistan’s banking system has great potential for further investment. He was speaking at a ceremony held here for the launching of Silkbank Limited, formerly Saudi Pak Commercial Bank Limited, says a SBP statement. Raza said the performance of country’s financial sector, which is largely dominated by banks, has been outstanding throughout the current economic situation. He stated that the banking sector has over the years nurtured itself in a way that it is able to withstand some of the shocks it has faced in the last 18 months or so. “The banking system is on strong footing and has long term potential, a feature which has served to attract a substantial amount of Foreign Direct Investment (FDI) in the sector, with established global financial institutions now active participants in the domestic financial sector,” the Governor SBP said.

Small investors should stick to mutual funds: NIT

This was stated by the National Investment Trust chairman, Tariq Iqbal Khan, while briefing reporters on the capital market and the role of mutual funds in its development.

He said that the fundamentals of economy had improved, but the capital market was overly-depressed due to political and law and order situation.

He pointed out that mutual funds and bonds market were more favoured instruments of investment in developed economies.

For example, he said, against bank deposits of $66.9 billion in Pakistan, the net assets managed by mutual funds were equivalent to $2.75 billion, which was only 4.4 per cent of the bank deposits.

India had bank deposits of $751.8 billion and the net assets under the management of mutual funds were to the tune of $77.5 billion or 10.3 per cent of the bank deposits.

The US had bank deposits of $7363.7 billion while net assets managed by the mutual funds were $9248.9 per cent or equivalent to 125.6 per cent of its bank deposits.

He said out of 107 mutual funds operating in Pakistan 86 were open-end mutual funds and 21 were closed-end mutual funds. Seven pension funds were among the open-end mutual funds.

Currently, he said, the capital market of Pakistan had capitalisation of $25.7 billion against $602.4 billion in India and $13,886 billion in the US. Net assets of mutual funds in Pakistan’s capital market were to the tune of $2.75 billion equivalent to 10.7 per cent of the market capitalisation, he added.

Against this, the net asset value of Indian capital market was $77.5 billion equivalent to $12.9 billion of the market capitalisation.

The net assets of the US capital market were $9248.9 billion which was 66.6 per cent of market capitalisation.

He dispelled the general perception that some institutions, including the NIT, intervened in the in the falling capital market on the instructions of the government to give it a boost. He said the institutions act independently and take investment or selling decisions in the larger interest of investors.

He said this was the reason that the NIT had constantly been outperforming average growth at the Karachi Stock Market.

He said in depressed times the NIT losses were always lower than the general decline in the capital market.

He said institutions did intervene in the capital market to stabilise it in the larger interest of investors.

He said almost all mutual funds operating in Pakistan were being run by highly qualified professionals.

He said that the NIT had about 38 per cent share of the total open-end funds of Pakistan and 80 per cent of the open-end equity funds. The trust, he said, had investment in around 450, out of total 651 companies listed on KSE.

Value of NIT’s fund invested in the market at current price levels was around Rs72 billion. He said that the NIT was the single largest institutional investor in the KSE. Presently, he said that the NIT had over 55,000 unit holders, who collectively hold 1.9 billion NIT units.

Only the cash-rich may play stocks!

The total number of investor account in the Central Depository Company (CDC) currently stands at 0.05 million while those in the sub-accounts aggregate 0.25 million. In a population of 170 million, it would be one in a thousand that dabble in stocks. Fruitless to compare that with one in four persons that visit the Dalal Street in Mumbai or every second American who invests his money and future in stocks.

Markets all through the world were in melting pot in the year 2008, but there are indications of recovery. The KSE, which plunged by a historic 60 per cent during the year, the 100-share index tumbling from 15,760 to 4,800, pushed hundreds of middle class households to the brink of poverty. The injured were spared the agony of waiting for Probe reports as most people agreed that the greatest sufferers were those who bought stocks on borrowed money.

That brought on to surface the simmering revolt against the ‘badla,’ named as CFS and further glamourised into CFS Mk-II by the previous SECP chairman. Haji Ghani Haji Usman, who was one of the two major brokers who spearheaded the successful movement by more than 100 brokers to the end to ‘badla’ is aghast at the regulators’ dilly dallying on replacing the outgoing leverage product with another one with better features.

He says that a consultative committee was set up to review and release a new derivative product in the market, but after four meetings and a passage of two weeks, the public is at a loss to know, how far the progress has been made.

‘The Securities and Exchange Commission of Pakistan must ask the committee to come up with the alternative leverage product within 10 days,’ he says.

The consultative committee of 10 members has received much flak for what most believe to be its slow progress. But Aftab Diwan, who heads the committee, says that its consultations with the SECP on a new leverage product was only a part of the job. ‘The consultative group has been assigned the task of looking at all aspects of the capital market, including risk management and to discuss them with the SECP,’ says Mr Diwan. ‘Discovering a new leverage product is primarily the job of the stock exchanges,’ he says in defence.

SECP chairman Salman A Shaikh could not be reached, but spokesman for the apex regulator shifted the responsibility on the committee.

‘We are waiting for recommendations of the committee,’ said Imran Ghaznavi and added that the SECP would look into the features of the new product when one is placed on the table.

No one at the stock exchange, among the committee members or at the SECP would commit on a firm date for the launch of a new product.

Mr Diwan explained that all stakeholders were being consulted, including the Mutual Fund Association of Pakistan; the Association of Insurance Companies; Modarabas; financial institutions and the bourses. He said that reaching consensus would obviously take a little while.

The market pundits call the matter of new leverage product a ‘grey area.’ There was, however, a general agreement on finding a derivative product that stands up to ‘International best practices.’ But why was a quick introduction of the new leverage product of such paramount importance?

A small investor who had lost all of cash, house and a shop in the stock debacle of 2008, expressed his grievance.

‘During the bloodbath, CFS or ‘badla’ was believed to have caused the greatest amount of hurt,’ he said. That leverage product was scrapped, but small investors who would still like to trade with the hope of recovering of some of their losses, had been deprived of a new derivative product.

‘From the depth of 4,800, the KSE-100 index has clawed up 15 per cent or by around 2,400 points,’ he says. But because of the absence of leverage, only the deep pocket investors, who can take delivery on cash, are able to reap the riches. There is lot of heart burning among leverage players, who stand aside, cast out as the ugly ducklings. But some believe that as volume of trade keeps evaporating to 100 million shares a day from an average of 250 million in the first quarter of last year, the impact might be more widely felt.

Some prophets of doom even suggest cornering of scrips by ‘broker cartels,’ followed by lower locks and the fall of the market into another crisis.