April 22, 2007	Sunday	Rabi-us-Sani 04, 1428

KARACHI, April 21: The paper value of corporate Pakistan has seen an incredible growth of 10 times in the last five and a half years from Rs343 billion at the fag end of 2002 to Rs3,393 at the close of the market this Friday.

Leafing through the KSE Annual Report for 2002, it is noted that the Karachi bourse was valued at a measly Rs343bn ($5 billion) on Oct 31, 2001. With the listing of Standard Chartered Bank (SCB Pakistan), which added Rs200bn, the market capitalisation of the KSE this week hit the new high at Rs3,393bn ($57.8bn).

Randomly selected stocks which have shown outstanding performance in various sectors since the end of 2002 include: Pakistan Oilfields which was priced at Rs144 on Oct 31, 2002 and is now trading at Rs336; PSO rising from Rs195 to Rs361; Adamjee, which shot up from Rs46 to Rs209.

But two that takes the cake are banks: the MCB stock priced at Rs33 four and a half years ago is now up for sale at the market at Rs286 and the price of National Bank stock closed last Friday at Rs247. A little over four years ago, it looked a little ‘expensive’ at Rs26 a share!

The painfully important question is: Who really has benefited from the stock boom. We know that the government did for it owns nearly half the market. Sponsors saw sharp rise in value of their investments in the nearly 7 per cent equity that they hold in their companies.

Financial institutions (banks, DFIs, mutual funds; insurance companies and others) could multiply total assets, by revaluation of their investments. The various market participants turned from millionaires to billionaires. The one standing on the sidelines and watching with awe looks like the small investor.

In the country with population of 160 million people, estimates suggest that not more than 150,000 people dabble in shares. Sadly most of them do so in short-term, speculation and as Nadeem Naqvi, CEO at AKD Securities famously remarked: “For every one story of great fortune in stock market speculation, there are ninety nine stories of losses”.

But back to the phenomenal rise in stock market capitalisation over the recent years. The interest in the country’s capital market rejuvenated shortly after 9/11 of 2001. That was the ‘tipping point’. Over the years, the market capitalisation has witnessed growth both due to the increase in value of already traded shares as well as the listing of some of the mega stocks.

It would require a bit of calculations by analysts’ to figure out how much of the increase could be attributed to the government’s offer of equity from its fully-held large sized units. Under the process of privatisation, in the previous five years, the government has offered equity in several big units to the public through IPOs.

Some of those include Oil & Gas Development Company (OGDC); Pakistan Petroleum Limited (PPL); Kot Addu Power Company (Kapco); the secondary offering in National Bank of Pakistan and others. Add to that the country’s venture into foreign markets in terms of GDRs including those of Muslim Commercial Bank (MCB) and OGDC.

Banking stocks now accounts for highest 31 per cent of market capitalisation. E&P sector, which early last year was the leader has dropped to the second place, but still contributing 22 per cent to market cap.

The KSE index of 100 shares is at the moment doddering at the height of over 12,000 points. But the bulls believe there is still room for it to rise. Without attempting to take the bull by the horn, the bears (of only few are found) offer suggestion to the investor: ‘caveat emptor’ (buyer beware!).