Hopes have been raised that the Pakistan Stock Exchange will be able to attract a wider segment of investors following the Chinese acquisition of 30pc stakes in the bourse and listing of PSX shares for trading.

Speaking at a ceremony held to celebrate these events at the PSX, Sindh Governor, Mohammad Zubair, advised the exchange to build upon the momentum to widen investor participation.

The PSX shares’ listing has coincided with that of Itifaq Iron Foundry Limited.

Seven applications of companies in different fields of business and industry including life insurance, food, pharmaceutical, technology, distillery, and brokerage houses are being processed by the PSX.

An investor with market insight estimates that about a dozen companies could be listed in the course of the next one year.

Besides, he says, companies such as steel mills and cement producers are also issuing right shares to raise funds — for both expansion and working capital — in cases where bank borrowing is expensive or difficult.

Currently the number of shareholders in the listed companies is stated to be very low, just over one million and only 0.25m on Central Depository Company (CDC) records.

A number of factors are stated to have contributed to this state of affairs: a lack of public awareness about the intricacies of stock trading and a negative perception that bourses are not an avenue for investment but a place for gambling, a wide held view as apparent from market volatility and speculative activity.

‘How can the market escape volatility when the country’s politics is so volatile?’

A market guru questions “How can the market escape volatility when the country’s politics is so volatile, the economy is not immune to the government’s inconsistent policies. All this have an impact on the financial health of the listed companies”.

Other reasons for low investor participation are stated to be limited outreach of securities houses and a low rate of domestic savings.

It is felt that brokerage services should be extended to more cities where potential investors remain untapped. Even in Karachi, which is supposed to be the country’s financial hub, there is a vast scope to increase business.

Ten financial institutions, including CDC, operating in the capital market are stated to have joined hands to expand outreach and extend the one-window operation to attract potential investors. One may, however, express some reservation about them setting up office in a place like Abbotabad.

Perhaps more problematic in attracting potential retail investors is the issue of liquidity and paltry free float of shares.

Often it is difficult for an investor to exit the market without incurring a loss owing to the prevailing market price of shares held by them, complains an investor.

Very few individuals have the skill to independently navigate the market and for them the best choice is to invest in mutual funds.

But the size of the combined mutual funds portfolio is reckoned to be smaller than the volume of investments made by the upper bracket of high-net-worth individuals or funds belonging to big business houses.

Critics say the stock market is narrow, shallow and lacks the required depth. That, they say, explains much of the market volatility. The number of listed companies is 561 while hardly 50 are active.

Some of the best performing companies buy back their shares because of nominal float of their stocks and the uneconomical cost of remaining listed.

For one reason or the other, the number of listed companies has remained stagnant for a long time.

In the United States, the situation is similar. JPMorgan just announced re-purchase of $19.4bn worth of shares over the next year with the intention of increasing quarterly dividends from 50 cents to 56 cents.

The Bank of America will buy back $12bn in shares to raise its dividends by a stipulated 60pc to 12 cents.

The present course of development of bourses tends to deviate from their original objective to widen corporate, industrial and business ownership.

Nor do market players in Pakistan seem to be very keen, as evident from the lack of a structured approach, to attract more retail investors.

In India, banks used their countrywide network to increase the number of investors in the bourse by providing ‘end to end’ and ‘stop to stop’ services for stock trading.

Speaking at the same event the Sindh governor addressed earlier this month, a leading light of the capital market, Arif Habib, pleaded that the Chinese Consortium which has acquired 30pc stakes in PSX be allowed to trade in the secondary market and raise its shareholding in the PSX to 51pc.

He says the Chinese can currently invest in listed shares and not the PSX shares. This anomaly should go in order to provide the Chinese with a level playing field.

The investment guru has a grip on the pulse of the capital market where concentration rather than dispersal of shareholders at this point of time is the name of the game.


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