TRADING at the Pakistan Stock Exchange (PSX) last Thursday saw the benchmark KSE-100 Index close at 42,847 points. Scarcely anyone recalled that exactly a year back from the date, the Index had hit all-time high of 52,476 points.

Over the year, the KSE-100 Index has bled 9,629 points or 18 per cent. Institutions and high net-worth individuals who usually invest in these stocks have suffered agonising losses.

That, however, is a pittance when compared to small investors who trade in low-priced shares, referred to as second and third-tier stocks.

Many competent analysts and stock strategists have now come to blame the absence of alternative products in the PSX for market volatility

These men, usually found lost in thought or trying to eavesdrop on trading agents, when asked about their investments will pull off their shirt to show the deep bleeding wounds and scars their foray into the PSX has dealt them.

Those who traded on the basis of meagre savings or borrowed money and had no holding power may have witnessed their investment go down the drain by as much as 50 to 80 per cent.

But this is not a new phenomenon at the equity markets in Pakistan. Small investors have been ruined in every market meltdown for as far back as one can trace.

“Investment in stocks is a high-risk, high-yield option and those who can’t hold on till the market bottoms out must enter through a mutual fund”, says a fund manager. While that may be true, many competent analysts and stock strategists have now come to blame the absence of alternative products in the PSX for market volatility.

Historically, the local bourse has depended solely on two products — a ready cash market which was later followed by 30-day deliverable future contracts.

On Jan 21, 2017 the PSX signed an agreement for the sale of 40pc strategic shares in the Pakistan bourse with a Chinese consortium, comprising three Chinese exchanges — the China Financial Futures Exchange Company Limited (lead bidder), the Shanghai Stock Exchange and the Shenzhen Stock Exchange.

Most of the market participants celebrated with the regulators who looked forward to “organised and robust development of the exchange” through the introduction of state-of-the-art technology, expanding investor base, new listings and product development opportunities. Already over a year has passed and the strategic investors have scarcely much to boast about.

Under the terms of the Sales-Purchase Agreement (SPA), the Chinese anchor investors were empowered to nominate personnel to three key management positions including the Chief Executive Officer (CEO).

Richard Morin, a Canadian national was appointed as the first ever foreign CEO of the Pakistan Stock Exchange on January 10 this year. Mr Morin has experience of working in stock exchanges from Montreal to Mauritius and West Africa.

His critics at the market, mainly stock brokers say that there has been little progress, if at all, in the working of the PSX over the four and half months that Mr Morin has occupied the top slot. In talks with a local daily recently, Mr Morin made big promises.

He spelled out his priorities as the listing of Exchange-traded Funds (ETFs) before the end of 2018; launch of several new products such as financial futures and stock options, attracting at least 20 new company listings a year and above all, boosting the number of retail investors to a whopping one million from the long languishing sorry figure of 280,000 investors.

Much of the market is taking those tall promises with a pinch of salt. Yet, the chairman of the new products and markets development committee, Shehzad Chamdia puts up a bold front in advocating the introduction of new products. He concedes that the progress has been slow.

Besides the ready market and 30-day futures contract, there are some other products that have already been introduced over the years but have attracted scant investor interest. Those include cash settled futures contracts for 30, 60 and 90 days and Stock Index Futures contracts (SIFCs).

The major reason for a lack of progress is the absence of market makers. Mr Shehzad says that there is a proposal to transfer deliverable future contracts to cash settled future contracts. He mentions the cold deliverable products such as Index and single stocks options, which are yet to take off in the absence of software for those products. The chairman expresses faith on the launch of ETF in 2018.

“A Chinese Asset Management Company (AMC) earlier signed a Memorandum of Understanding (MoU) with the PSX to take up the function of a market maker to launch ETF in Chinese stock exchanges”, says Mr Chamdia. But the progress on that front has been stalled due to a slowdown in streamlining foreign exchange regulations between the Central banks of the two countries.

Independent market analysts view all of this with scepticism. With seven tumultuous months of 2018 ahead that will see heightened political activity in the country due to general elections, the economy in doldrums and a badly battered stock market; the talk about a launch of new products, beefing up volume by five times, accelerating new listings and attracting hoards of new retail investors when the old are licking their wounds, is all but blowing hot air.

An investor who has lost 80pc of his wealth in the year-long market meltdown uttered some unprintable words when asked about investing in new products. “The market regulators should first concentrate on putting a floor under the current market fall to salvage what is left of the already invested public”, he growled thereafter.

Published in Dawn, The Business and Finance Weekly, June 4th, 2018

Opinion

Editorial

‘Source of terror’
Updated 29 Mar, 2024

‘Source of terror’

It is clear that going after militant groups inside Afghanistan unilaterally presents its own set of difficulties.
Chipping in
29 Mar, 2024

Chipping in

FEDERAL infrastructure development schemes are located in the provinces. Most such projects — for instance,...
Toxic emitters
29 Mar, 2024

Toxic emitters

IT is concerning to note that dozens of industries have been violating environmental laws in and around Islamabad....
Judiciary’s SOS
Updated 28 Mar, 2024

Judiciary’s SOS

The ball is now in CJP Isa’s court, and he will feel pressure to take action.
Data protection
28 Mar, 2024

Data protection

WHAT do we want? Data protection laws. When do we want them? Immediately. Without delay, if we are to prevent ...
Selling humans
28 Mar, 2024

Selling humans

HUMAN traders feed off economic distress; they peddle promises of a better life to the impoverished who, mired in...