It is interesting that Pakistan has one of the best capital markets in the world, yet they lack appeal among masses. Only some 0.125 per cent of the total 180 million population invests savings in capital markets, whereas in developed world, over 45 per cent people prefer to keep their savings in various stock instruments.
Data shows that in the United States, a large portion of the population – over 45 per cent – opts for equity market products to park their savings. Figures indicate that even around 54 per cent Americans prefer to invest their retirement savings in stocks because over a period of time the market has matured enough to attract investor confidence.
On the other hand, local statistics show that Pakistan has only 200,000 to 225,000 investors who maintain accounts with Central Depository Company of Pakistan Limited (CDC), the only depository company handling electronic settlement of transactions carried out at all three stock exchanges of the country. Apparently, investors are largely unaware of capital market products or lack confidence in stock markets.
However, Karachi Stock Exchange (KSE) Annual Report 2010 shows KSE secured forth ranking among 21 best stock exchanges in the region and the developed world. In terms of index gain, KSE 100-share index showed an increase of 35.70 per cent during the previous year, and outperformed Bangkok’s SET, Amsterdam’s AEX General, Frankfurt’s DaX, Kuala Lumpur’s KLSE, Seoul’s Composite, Bombay’s Sensex, Singapore’s Strait Times, Brazil’s BVSP, the United Kingdom’s FTSE-100, United States’ Nasdaq, Taiwan’s T Weighted, Paris’ CAC-40, Australia’s AORD, Hong Kong’s Hang Seng, New Zealand’s NZX-50,Tokyo’s Nikkei-225 and China’s Shanghai Comp. Numbers show that only three bourses, including Istanbul’s ISE National 100, Jakarta’s Composite and Argentina’s Mer Val, performed better than Karachi Stock Exchange during 2010, as these markets witnessed an index gain of 48.40 per cent, 43.80 per cent and 37.60 per cent, respectively. Speaking to Profit, Lahore Stock Exchange (LSE) Managing Director Aftab Ahmad Chaudhry underscored that education of investors, credibility of stock markets and product innovation were few important challenges, which required capital markets and regulator’s attention. “There is a dire need to improve common perception about equity markets,” he stressed.
Responding to a query, he said that the country had good regulations, but there were some enforcement issues that needed to be reviewed. He pointed out that currently there was no mechanism to evaluate broker’s financial health as all stock markets in the country were operating separately. Speaking about stock products, LSE MD said that the country had only few products available to compete with National Saving Schemes and banking products. Despite capital gain investors were preferring saving schemes over stocks only because of security and perception, which could bring in stock markets through product innovation and investor’s education, he maintained.
Aftab also tried to dispel the impression that only people having huge money could trade in stock markets in Pakistan. He underlined that in today’s trading environment even a person could buy a single share if he had little investment. Citing his own example, he pointed out that he bought a few shares from his son’s eidi, just to introduce him about the equity markets.
Lahore Stock Exchange (LSE) Member Asif Baig Mirza believes that bourses in the country are facing multiple challenges on domestic front, mainly related to public perception about stock markets. He indicated that investors’ short-term investment view is the biggest test for local capital markets, as after removal of the leverage system (popularly known as badla) trading volumes have been compromised.
He underscores that Pakistan has as good regulations as any developed country in the world. However, stock markets had to focus on product development, Mirza said and added that it would automatically increase market base and enhance investor’s attraction.
