AT long last the process of making Pakistan’s stock exchange independent of the powers of the broker community is reaching fruition. With the sale of a strategic stake in the newly created Pakistan Stock Exchange to a Chinese consortium, the country’s capital markets could well receive the boost that the fundamentals merit. A lot depends on how well the new investor can manage the peculiarities of the PSX. There are grounds to be confident though, since the consortium brings plenty of experience to the position, and the stock market here is not particularly complex or diversified. That gives the new investor much room to introduce and prioritise new products and deepen trading. A futures market would be one related development.

With the power of the broker community dwindling further now, the front-line regulator should also take a more aggressive stance with regard to malpractices and the enforcement of rules. Many companies are habitually late in filing their financial results but suffer little to no penalty. Also, there have been a number of cases where bogus companies have been allowed to float an IPO. Many other companies that have ceased to exist continue being traded. And, of course, that ultimate bugbear of the stock market — manipulative trading, where share prices are artificially inflated through pump-and-dump schemes. There is a wide area where the PSX needs to strengthen its performance before the real potential of the country’s stock market can be unlocked. With the arrival of the new consortium, we will now see if the original vision behind the road to demutualisation will bring in the benefits that it promised at the outset. In addition to the stock market, the commodity exchange needs to be deepened as well. Considering Pakistan is a large wheat-growing country, there is massive scope for a commodity exchange to flourish. Thus far, widespread rackets in the agricultural sector have pre-empted this, and the commodity sector remains largely informal as a result. The new consortium in the stock exchange has its work cut out for it, but if it takes its responsibilities seriously and succeeds in curbing the kinds of practices that have given the stock market a bad name in the past, it could yet deliver a measurable boost to the economy. Perhaps we might actually see the day when the stock is used to raise capital for investment as well.

Published in Dawn December 25th, 2016