Published article in Business Recorder regarding Escalation of Pakistan Capital Market

Escalation of Pakistan Stock Market and the role of Stock Brokers with Mutual Funds

The strongest backbone of Pak Economy “Pakistan Stock Exchange”

The Pakistan Stock Exchange (PSX) 100-Index is the best-performing stock market in the world and built the belief of foreign investors &local investors. The year 2014 proved to be a year of escalation and enthusiasm for the capital market as, PSX-100 index gained 6,870 points as compared to same period last year and generated a handsome return of 27%. While, 2015 is a hit to the continuous stellar performance of PSX-100 index over past years as PSX-100 Index registered meager increase of 2.1%. In 2015, PSX benchmark-100 index increased by 678 points and closed at 32,816 points against 32,138 points on December 31, 2014. During the period, Foreign Investors stealing the show as outflow of $ 315.2 million witnessed in 2015, instead of Inflow of $382.4 million in 2014. While Pakistan is not immune to what goes on in the emerging markets, recent equity market and currency performance relative to peers suggests Pakistan is likely to be an exception in the emerging and frontier market group in the current scenario. MSCI Emerging and Frontier Indices are down approx 17% and 18% respectively in 2015, whereas Pakistan equities have recorded a gain of 2% during the same period.

PSX 100-index has crossed 36,000 points in Aug-15. Index turns out to be achievable because the SECP, The Securities and Exchange Commission of Pakistan have taken a definite escort, in strengthening the regulatory framework that protects investor’s interest. It is also launching initiatives to widen the reach of the capital market investment products to savers across the nation. The Securities and Exchange Commission of Pakistan (SECP) is an eccentric institution: it is concurrently the chief regulator and the primary promoter of the development of Pakistani financial markets. It is our confidence that SECP would continue to strengthen its regulatory framework further and play its role in ridding the society of the curse of corruption. Moreover, SECP strict regulation attracted foreign investors and eventually raises the international inflow.

As of financial crises of 2008, PSX 100-index suffered the same fate as other developed countries stock markets such as USA and Europe. It becomes a contemplation that Pakistan Stock Exchange (PSX) was the most inefficient and volatile stock market of the world which is full of inscrutability and escapade performances. However, PSX had suffered because of some lineate regulation. One more reason for the collapse of the stock market was records level inflation of 17.2% in the month of May 2008. In result, the unexpected increase in the interest rates 12% in the month of May 2008, by State Bank of Pakistan, this eventually led to sharp fall in Pakistan Stock Exchange. But now, the time has changed, PSX index reached to its peak level and crossed 36,000 points because of effective effort of PSX management, CDC, SECP and NCCPL played an optimistic role for the development of Stock Market such as in precedent instance shares were trading physical Therefore, investors had to face lot of difficulty in trading. CDC has introduced the system, conversion of physical shares into electronic shares and makes the shares trading flexible and efficient, which has tremendously changed the PSX-100 index. Moreover, SECP regulations enhanced investor security that has ultimately attracted the foreign and local investors.

After the financial crises of 2008, industry dynamics has significantly changed and from which we had learned, how to sail the ship in the storm and through which strategy we can take out the ship from the storm. Investors Institute enchanting, well-designed assessment for equity investment and they had become more intellectual as compared to the precedent instance. The apex regulator efficient and proactive role is increasing the belief of investors and its untamed eye on the capital market has highly reduced the fraudulent activities in the capital market. Stock brokers understand their responsibility and take the least interest in leverage and proscribe investment in third and fourth tear stock with leverage and minimize their risk by investing in such stocks with strong fundamentals and technical analysis. Although it consequences into the reduction in trade volume and income, it contributed in strengthen the industry and ultimately support The Government of Pakistan and betterment of Pakistani Economy. Hence, it is justified to appreciating those stock brokers who exist in the worst time of 2008 world financial crises, with their proper risk management system reestablish and strengthen the PSX 100 index and turn it into positive average return.

A mutual fund is one of the fast growing sectors of Pakistan Furthermore, highly efficient and regulated.  MF regulated by Mutual Fund Association of Pakistan “MUFAP” and SECP. At the time of financial crises, local investors highly suffered because they had invested their savings in third, fourth and fifth tear stocks. Which rates are far behind on their buying level, whereas, Mutual Funds companies invested their asset in blue chip stocks because of which they were not suffered. In the time of financial crises they had distributed the positive return hence, developed the trust of public. Currently, Mutual Fund is performing healthier which is quite appreciated. Moreover, it has built up the concept of Islamic Equity Investment in which its, highest proportion of investment is investing in Pakistan Stock Exchange. 

While, the management of PSX is involved in the apex regulatory and for further development of PSX 100 index, they are more active in social media, Local road shows and awareness program in public. It is also witnessed that the current MD is more vigilant, aggressive and experienced as he has years of experience in the same industry and previously working for top brokerage house of Pakistan as CEO. Hence, it is highly beneficial and result oriented to select the candidate from the same industry, rather than bring the entrant from other industry or placed on personal interest.

Media is playing a significant role in reinforcement of the industry furthermore, commute timely news related to financial sectors through which economy of Pakistan become stronger and efficient.  It is highly appreciated the effort made by “Business Recorder” for the encouragement of Stocks Brokers, Mutual Funds, PSX and SECP through different channels and understand their devotion to it.

  In Conclusion, for further development of Pakistan Stock Exchange, Management should introduce more products according to regional market as soon as possible, as, it is hard to survive in T+2, Future, MTS and Borrowing from banks in especially selective stocks.  PSX regulators should provide leverage window to TREC holders to enhance volume and build the confidence of stock brokers for expansion decision. In the precedent instance, PSX provides PKR 10 million intraday exposure to all TREC holders but now, we don’t have such facility. Hence, PSX regulator should focus on such issues and provide the reliable solution for the growth of the industry. It is necessary to conduct road shows locally in across the nation. Although, we had done countless road shows throughout the world but never focused on local investor and never recognize the strength of our people and their investments.

In last I am very much thankful to this effort of BR to strengthen and create awareness about Stock Market “THE BACKBONE OF PAKISTAN ECONOMY”.