THE zoological imagery (bulls and bears), the colourful screens (green and red), the tickers, the numbers — the stock market is indeed a vibrant place.
In Pakistan, however, real estate and gold easily qualify as the cynosure when it comes to investment destination, not because of some intricate formulas or mathematical numbers, but mainly owing to the collective mindset of the country.
The old system of ballot committees (popularly known as BCs), the intricacies of investing in equities and the illusion of quick money are some of the factors that keep our individuals away from turning towards the local bourse.
Everyone loves money, and a quick buck is preferable. But this illogical alacrity and delusional expectations come as a harsh reality for those who realise that this not the case.
There is also a need for introducing more transparency in the bourse. Also, awareness programmes should be specially designed for individuals and organisations so that they may know the benefits of investment
“There are different types of stock investors. Some come for gambling and some others with the hope of becoming a millionaire overnight. Only a handful of people look for long-term stable returns,” says Nadir Khalid, who has been investing in the Pakistan Stock Exchange from the past nine years.
To fall in the last category, proper education and knowledge about the markets is required. Those who lack it easily fit in the former categories. What needs to be understood is that there is no such thing as quick money. If there is, the risk is even higher.
The magnitude of risk aversion should be moderate. However, most people here have a preponderance of the above trait. No doubt then that the system of ballot committees serve as a means of investment for a big part of our household, especially women. The upside: no interest and therefore no volatility. The downside: no return, no profit — you only get a lump sum and then continue to pay it back.
“We have a culture of investment in gold and real estate. Also, most of us look for monthly income (for example, buying an apartment and renting it). The stock market is considered a place of only speculation and gambling,” says an investment banker.
While addressing the lack of education he further added “In India, children are taught about investment from the seventh grade. By the time they graduate they are all ready to invest,” he adds. “Brokerages houses are also to blame, as there is no awareness programme (to address the issue); they are only concentrating on the number of accounts. A concerted effort to introduce the culture of investment seems to be missing in Pakistan.”
One might add the embezzlement by brokerage houses also keep people at bay. Pump and dump, market manipulation and insider trading continue to reduce chances of success for an individual.
Here are some stats: capital investment as a percentage of GDP ranged between 11.56 per cent – 21.47pc during 1996 and 2016. The investment-to-GDP ratio has inched up from 15.55pc to 15.78pc against the South Asian average of 34pc. Pakistan is ranked 147th out of 190 countries on the World Bank’s ease of doing business index. The saving-investment gap is another issue. Compared to the 2009-10 fiscal year, there was an increase of only 1pc in 2015-16. Domestic savings have actually decreased from 9.8pc of GDP in 2009-10 to 8.3pc in 2015-16.
There is a need for introducing more transparency in the bourse. Also, awareness programmes should be specially designed for individuals and organisations so that they may know the benefits of investment. The concept that stock markets are only speculation should be rectified. An overall stable political and business environment can contribute a lot.
Yes, there are risks and the market is volatile. But risk is accompanied by profits. Moreover, the daily undulations in the market lose their significance in the long run.
As long as one doesn’t panic, nothing is lost. In his famous book Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor, American investor John C. Bogle tells the story of an optimist, who, when asked about his advice on a floundering economy, said: “In a garden... growth has its season. There are spring and summer, but there are also fall and winter. And then spring and summer again. As long as the roots are not severed, all is well and all will be well.”
Published in Dawn, The Business and Finance Weekly, March 12th, 2018