There was exuberance amidst investors at the Pakistan Stock Exchange as it tossed the KSE-100 Index above 50,000 last week.

Giving a substantial return of 46pc last year—the highest among Asian peers and the fifth best among global markets — investors with savings have nowhere to go but the capital market at the far corner of I.I Chungdrigar Road in Karachi.

The Chinese consortium’s entry as the buyers of a 40pc strategic equity stake, signed and sealed a fortnight ago, has acted as a sweetener.

The equity boom up until last year owed itself to corporate earnings, while the market is now liquidity driven, says Nasim Beg

The consortium won by placing the highest bid of Rs28 per share for 320m shares at the total price consideration of Rs8.96bn, when the stake was put on the table in winter last year. It comprises the Chinese Financial Futures Exchange Company Ltd (lead bidders), Shanghai Stock Exchange, Shenzhen Stock Exchange, and two local partners: Pak-China Investment Company and Habib Bank Ltd.

But the KSE-100 index, now at the dizzy height of 50,000 points, having recovered from an eight year old shock that had sent it spiralling downwards to under 5,000 points, is something to reckon with.

The apex regulator, the Securities and Exchange Commission of Pakistan (SECP), has rushed onto the deck to tighten the ropes.

Chairman SECP held out an assurance that there was no likelihood of a market crash as the SECP’s Systemic Risk Department was active in market surveillance and monitoring; though he warned individual investors of blindly grabbing stocks in a quest for quick profits and released guidelines for them to trade with caution.

Last Wednesday, the SECP also directed ‘existing companies other than public sector companies and multinational companies’ to enhance their ‘free float’ to 25pc of the total issued shares and 5m shares in free float by Jan 03, 2018, where the companies fell short of that minimum limit.

Nasim Beg, Vice Chairman, MCB-Arif Habib Savings says that the equity boom up until last year owed itself to corporate earnings, while the market is now liquidity driven. Market analysts have been feverishly estimating the cash that is waiting to enter the market.

Head of Research Saad Hashemy at Topline Securities espouses an optimistic outlook for liquidity. “The continuation of the current low interest rate environment will benefit local equities where we see flows from Mutual Funds and Non-Banking Financial Companies continue this year as well”.Further, there is now a strong likelihood of an amnesty scheme in 2017, which would be along the lines of the one implemented in Indonesia in July 2016 that fetched around $10bn in the Indonesian economy.

“Given that Pakistan’s economy is 1/3rd the size of Indonesia, possible inflows of $2-3bn can potentially be realised by such an amnesty scheme” Hashemy reckons.

There are more inflows that most market gurus are looking for. The PSX can expect foreign buying of $100-200m worth stocks, following the market’s reclassification to MSCI Emerging Markets in May this year, regardless of the huge outflow of $339m in 2016. Analysts add to that the $100m stockbrokers would receive against sale of 40pc PSX shares to strategic investors and 20pc stock to the public in an upcoming initial public offering (IPO).

“As long as the market stays flush with liquidity, there is low probability of any serious downfall”, says Mr. Nasim Beg. There is no foreseeable threat either to the underlying companies’ growth and earnings.

Khurram Schehzad, Chief Commercial Officer at JS Global Capital Limited visualises great growth potential for the PSX going forward. “The Chinese consortium is expected to bring in investment, experience, technological assistance, new products and cross listings” he says, adding that it would enhance the PSX brand profile and give it an international image.

He agreed that just around 2,50,000 account holders and only 558 listed companies was too small a base for the PSX, when compared to 50m investors and 5,900 companies on roll on the market on Dalal Street.

He lauded the proactive role of the SECP and the PSX in speeding up the process of market reforms along with member co-operation in understanding that much of what is happening is a ‘win-win’ situation for all.

Published in Dawn, Business & Finance weekly, January 30th, 2017