Capital market on a rollercoaster ride amid shaky foreign investment

KARACHI: Pakistan’s capital market remained volatile during the outgoing 2018/19 fiscal year because of multiple factors with local investors continuing to offset capital flight from foreign investors, the economic survey report said on Monday.

The Pakistan Stock Exchange (PSX) rose 16 percent to 38,649 as on March 31, 2019 from 33,229 points as on January 1, 2016. The market continued to gain some momentum to have reached 43,557 points on July 30, 2018. “(But), after which it started moving down, reaching the period’s lowest index at 36,663 points on October 16, 2018,” the economic survey report said.

The financial measures introduced through a finance bill in January this year gave some respite to the market and the index saw rising trend for some period. “However, it has remained volatile during the period under review and closed at 38,649 points on March 31, 2019, while the market capitalisation was Rs7.868 trillion.”

The average daily value traded during the first nine months of FY2019 was Rs7.2 billion and the average daily turnover was 170 million shares. The average daily trade value in futures was Rs2.9 billion and the trading volume was 71 million shares during the period.

The economic survey report for FY2019 said foreign investors offloaded securities worth $373 million. Local investors, banks / development financial institutions offset the capital flight from foreign investors.

“The strong buying by local investors has shown the confidence of the investors in Pakistan’s equity market,” the survey report said. “Going forward it is expected that the market will move in upward trajectory.”

The Economic Coordination Committee of the cabinet division authorised the government to issue sovereign guarantee amounting to Rs20 billion for investment in National Investment Trust-State Enterprise Fund to provide short-term stimulus to the stock market and arrest its downward trend. “This step would increase liquidity in the PSX and would woo investors to divert more investment in the market.”

The economic survey report further said a total of 10,865 new companies were registered with the Securities and Exchange Commission of Pakistan (SECP) during the nine months ended March 31, 2019, a 30 percent growth over the corresponding period a year earlier. Corporate debt securities were outstanding with an amount of Rs888.24 billion.

Assets under management of the mutual funds amounted to Rs635.90 billion. Equity funds held the largest 37.75 percent share of the mutual funds industry as of March 31, followed by money market fund (36.93pc) and income funds (17.50pc).

The SECP took measures to address potential threat of money laundering and terrorist financing within its regulated entities and maintained integrity of the financial markets, including framing of SECP Anti-Money Laundering/Counter Financing of Terrorism (AML/CFT) Regulations 2018, amendment in Securities Brokers (Licensing and Operations) Regulations 2016 by introducing pre-condition that ultimate beneficial owners of securities broker should not have been convicted in any predicate offences provided under Anti- Money Laundering Act 2010 or the Anti- Terrorist Act 1997, and organising awareness sessions on AML/CFT regulatory framework.