June 18, 2006	Sunday	Jumadi-ul-Awwal 21, 1427

KARACHI, June 17: International fund managers invest in emerging markets for three reasons, said Kalim Aziz, senior analyst at Kairos Investment Management Limited, London at the Dawn Asia Finance Conference 2006 Series II “Fund Managers — Pakistan’s Capital Markets,” held on Saturday. That was the second and the full-day of a two-day conference encompassing series of panel discussion.

Kalim identified those three reasons as: domestic demand and market forces; resource endowment (such as oil, gas, metals etc.,) and cheaper and abundant skilled labour.

Giving his final presentation at the conference on “What Investors should look for before and after investing in emerging markets,” Kalim stated that no one can predict the market, for markets do not move rationally. Fear and greed are the factors that lead to market movement. Fundamentals cannot drive the market, but liquidity does. But the reason that the market should go up is that the fundamentals are sound, Kalim said.

He stated that international asset managers are understandably capitalists and tend to move money quickly from one particular company or country to the other, with the objective of making maximum profit. He believed that the real impact of the recent fall in international equity markets would be visible in few months or couple of years.

Rupert Neil Bumfrey, director, Alliott Management Consultants & Alliott Hadi Shahid chartered accountants, spoke on “Re-establishment of Pakistan Offshore mutual funds”. He observed that there were very few sharia-compliant equity funds and a vast scope existed in the Middle East and rest of the world for such funds. He stressed that he was very positive on Pakistan’s enormous potential to establish offshore equity, debt and money market funds.

Earlier, Nadeem Naqvi, CEO of AKD Securities spoke on the ‘Insight of the Fund Management Industry” and discussed various dimensions of the subject such as quality management; discretionary fund management; risk management trading issues, diversification of portfolio and transparency. Naqvi said that in the end what determines the success or failure in any industry including mutual fund, was the transparency.

An ‘special discussion’ encompassed various issues such as “how should an individual investor read the market; when is the right time to invest; what signs should one look for and where is the market heading, 200000 or 5000?

The participants included Iqbal Ismail, chairman of Ace Securities; Nasim Beg, CEO of Arif Habib Investment Management; Mohammad Shoaib, CEO of Al Meezan Investment Management Limited and Kalim Aziz.

There was a good deal of discussion on what should be the methodology of arriving at an equity value. A couple of panelists thought that price-to-earnings (p/e) ratio did not present the clear picture but Return on Equity (ROE) did. The participants believed that the methodology of valuations would differ from one to the other research houses. Views expressed were that risk and returns mattered and valuations and liquidity do not flow in line.

Research houses were criticised for pushing the ‘buy’ side story and the wide variations in ‘fair values’ calculated by different brokerage houses also received some flak. The panelists were asked views on various aspects of the subject by moderator, Tauqeer A. Muhajir, Editor Money, and the participants of the conference were also encouraged to raise queries, which were answered by the panelists. The important question on which various views were expressed was regarding the 40pc discount on which the Pakistan equity market was currently trading compared with regional markets. “Why was the Indian and other regional markets trading on 14 times the prospective earnings and Pakistan on just 9 or 10 times”, was a query, which received various answers.