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Best performing market in Asia

Published on 31st Oct, Edition 44, 2016

 

The South Asian nation, mostly in the news for terrorism and political violence, has beaten major Asian economies this year in stock market performance and for which Pakistan stock market recorded a feat.

Pakistan is the best performing market in Asia this year with the KSE-100 Index soaring 23.5 percent followed by Vietnam and Indonesia with returns of 18 percent and 16.8 percent, respectively, while India’s Sensex Index has gained only 6 percent.

In 2016, Pakistan’s benchmark equity index, the KSE 100, has been one of Asia’s best performing. In fact, it is the fifth-best performing stock index globally. Bloomberg even referred to Pakistan as an Asian ‘tiger,’ in a report.” Bloomberg an eminent media outlet, which is run by 175 staffers pulled from prominent journalism brands like, the New York Times, the Economist and the Wall Street Journal, etc, has added: “The Karachi Stock Exchange (KSE) — also known as the Pakistan Stock Exchange—has stood out in recent years, despite a troubled political and security environment.

With a nominal GDP of $270 billion and a per capita income of $5,000 the country has succeeded in attracting positive reviews between January and July 2016 from numerous Western media houses, the World Bank and the globally-acclaimed credit rating agencies like Moody’s, etc.

The most recent July 20, 2016 report of the Indian edition of Quartz, a digital global business news publication, which was initially sponsored by internationally known firms like Messrs Credit Suisse, Boeing, Chevron and Cadillac, etc, has revealed that Pakistan has beaten major Asian economies this year in stock market performance. Quartz India, which is viewed by over half a million unique visitors every month, has stated: “The Brazil, Russia, India, China and South Africa (BRICS) grouping is passe and the top emerging markets are losing sheen. The British exit (Brexit) has battered stocks the world over and currencies across economies are weakening.

There’s also been some support from a 2012 government amnesty programme, which allowed investors to pour money into shares until June 2014 without their source of funds being questioned. This doubled the average traded volume on the KSE.”

Quartz has maintained: “Launched in 1988, the Morgan Stanley Capital International (MSCI) emerging markets index first included Pakistan in 1994. In 2002, the KSE was shut down due to a stock market crash. Six years later, in 2008, it was temporarily closed following the global financial crisis.

Faced with such shutdowns, MSCI dropped Pakistan out of the emerging markets index till this year. Over time, investors have regained confidence in the country’s equity markets.

Investment in infrastructure, coupled with aggressive government spending, is making Pakistani markets attractive to investors. Further stability in politics will only help.

The Chinese have announced large investments in the country. When China’s $46-billion investment to build a China-Pakistan Economic Corridor actually happens, it will boost trade and make critical infrastructure, such as power, easily available to individuals and industries alike.

An April 27, 2016 report of the Moody’s Corporation, which had reported revenue of $3.5 billion in 2015 and employs approximately 10,800 people in 36 countries, had said: “Pakistan’s B3 issuer rating balances strengthening growth and progress on structural reforms against a relatively high government debt burden and political risks.

Moody’s assessment of Pakistan’s “Moderate” economic strength encompasses the sovereign’s very low per capita incomes and the large size of its economy.

Economic output, previously anemic, has picked up over recent years and is now rising at a relatively healthy pace.

The implementation of the China-Pakistan Economic Corridor will likely support activity further, and in concert with energy sector reforms will improve the operating environment for investment.

Pakistan is considered the best market for gains after reduced performance of the Chinese economy and interest rates in the United States.

Prime Minister Nawaz Sharif averted an external payments crisis in 2013 through a loan programme of the IMF and is dedicated to boosting economy to its fastest pace of the decade,” according to the report. The World Bank President Jim Yong Kim had opined that Pakistan was on the path of increased economic growth and prosperity.

 

History of Pakistan stock exchange limited

Pakistan Stock Exchange Limited (PSX) (formerly: Karachi Stock Exchange (Guarantee) Limited (KSE) was established in September 18, 1947 and was incorporated on March 10, 1949. Five companies were initially listed with a total paid-up capital of 37 million rupees. The first index introduced in KSE was based on fifty companies and was called KSE 50 index.

Trading used to be carried out on open out-cry system. Computerized trading system called Karachi Automated Trading System (KATS) was introduced in 2002.

In October 1970, under the Securities and Exchange Ordinance of 1969 by the Government of Pakistan, a second stock exchange was established in Lahore in response to the needs of the provincial metropolis of the province of Punjab. It initially had 83 members. The LSE was the first stock exchange in Pakistan to use the internet. Another stock exchange known as Islamabad Stock Exchange was established in Islamabad, the capital city of Pakistan on October 25, 1989 with the main object of setting up of a trading and settlement infrastructure, information system, skilled resources, accessibility and a fair and orderly market place that ranks with the best in the world and to cater to the needs of less developed areas of the northern part of Pakistan. It was licensed as a stock exchange on January 7, 1992.

All these three exchanges had separate management, trading interfaces, indexes, listing criteria etc and thus had no mutual links to each other. All three exchanges were previously operating as a non-profit organization with mutualized structure wherein their respective members had trading as well as ownership rights.

The Stock Exchanges (Corporatization, Demutualization & Integration) Act, 2012 (known as “Demutualization Act”) was promulgated by the Government. As a result these three exchanges were merged together to form a new combined exchange called Pakistan Stock Exchange Limited (PSX), which started its operations on January 11, 2016 under this new title.

Under the aforesaid Demutualization Act, members have ceased to be Members of PSX and they have been issued Trading Right Entitlement Certificates (TRECs) and PSX’s ownership shares. Whereas TRECs represent trading rights, PSX shares represent ownership. Now, TREC holders need not be a shareholder of PSX nor a PSX shareholder is required to be TREC holder of PSX.

As envisaged under the provisions of the Demutualization Act, regulatory functions have been segregated from commercial functions of PSX, so that regulatory functions are not compromised for achievement of commercial objective of generating revenue. Under the provisions of the said Act, after demutualization, persons representing TREC holders on the PSX Board shall not be in majority.

The Act envisages divestment of shares of TREC holders held in their blocked accounts to strategic investors and general public/financial institutions within a certain time limit.

As on October 24th, 2016 there are 576 companies listed in PSX and the total market capitalization is Rs8,345.979 billions. The listing is done on the basis of strict rules and regulations laid out by Securities Exchange Commission of Pakistan (SECP) & the management of Pakistan Stock Exchange Limited. All the listed companies are categorized in various main business sectors.

As on October 24th, 2016 there are total 35 sectors listed on Pakistan Stock Exchange, which contribute towards the market capitalization and all the listed companies (excluding their future contracts) are divided among these. Rest of the non contributory sectors are allocated for indexes, futures, bonds etc.

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