ISLAMABAD, Aug 16: The Asian Development Bank (ADB) desires more companies to be listed on the Pakistani stock exchanges and increase in market capitalisation to create jobs and diversify investment opportunities.

Since 2001, the equity market capitalisation and share prices have increased substantially in Pakistan with annual growth rates averaging more than 50 per cent. The market capitalisation increased from 9 per cent of Gross Domestic Product (GDP) in 2001 to 35 per cent in 2006 amounting to $45.5 billion.

However, this was pretty lower than in other Asian markets.

According to Juan Miranda, Director General of ADB’s Central West Asia Department, the increase in the market capitalisation was mainly due to listing of a number of large state-owned enterprises (SOEs) and growth in share prices rather than successful capital mobilisation through equity issues.

“The equity market is still narrow. There is a need for more listing and diversity,” Mr Miranda told reporters here on Thursday.

When asked about the ADB’s recommendations for the second generation reforms and more powers for the top officials of the Securities and Exchange Commission of Pakistan (SECP) and the liberation of the country’s top corporate watchdog from the influence of the Ministry of Finance, he said:

“The freedom of SECP has never been our concern. In fact, there is always room for improvement. The finance ministry itself is approaching us and wants improvement in the regulatory capacity of the SECP that is heartening”.

But, he admitted that there were some bottlenecks that hampered the spread and diversity of investment and money generation through the stock market. The second generation capital market reforms, he hoped, would remove such bottlenecks.

He said the $400m ADB loan for the second generation reforms would further strengthen the regulatory capacity of the SECP, facilitate the mobilisation of financial resources for productive investment and employment generation by supporting development of corporate bond and equity markets in Pakistan.

Mr Miranda, however, did not give a clear answer when he was asked about the so-far unaccomplished but long-desired demutualisation of the stock exchanges, a part of the ADB-funded reform process, and the apparent virtual control of the country’s bourses by a few dozens influential brokers, the main reason behind the March 2005 stock market crash.

But, Mr Miranda, who is on a four-day visit to Pakistan, seems pretty hopeful of a successful reform process in the Pakistani capital market at the end of the day. He said, internationally, the capital markets had transformed over the years by the introduction of the concept of the “Best Practices” and that Pakistan was going in the right direction.

According to a recent ADB report, 10 largest companies alone account more than half of the stock market capitalisation in Pakistan. However, only an average of 20 per cent of their shares has been floated. This, like in other countries in the region, is an important factor behind low market liquidity.

While other countries in the region face similar problems with market outreach, Pakistan is clearly lagging in terms of resource mobilisation through the capital market. In 2005, for instance, Pakistani companies issued some $68 million equivalent in new capital.

This compares to $19.1 billion in India, $4 billion in the People’s Republic of China, $3.7 in Thailand, $2 billion in Malaysia, $1 billion in Indonesia and $900 million in the Philippines, the report states.

The amounts of equity capital raised in Pakistan over the preceding years were even lower.

Similarly, only $203 million equivalent of capital was raised through corporate bond issues in Pakistan in 2005. Nevertheless, the number of bond issues has clearly increased as compared with the 1990s. While nine corporate bonds were issued in 1995–1999, some 68 corporate bonds were issued in 2000–2005.