ISLAMABAD, Jan 23: “The present dip in the stock market is a temporary phase and a normal phenomenon of an active market everywhere in the world,” said Khalid A. Mirza, chairman, Securities and Exchange Commission in a telephonic conversation with Dawn on Thursday.
Contacted on mobile phone, Mirza now sojourning in Paris, said the fall was not unexpected after an unprecedented rise during the past few weeks. The KSE index, he pointed out, had risen by 1100 points during the last six and a half months from 1770 in June 2002 to 2950 on January 15, 2003. Within the first two weeks of current month, it soared by 250 points.
Independent market observers, approached by this correspondent, agreed with him and said that in a situation where there was active trading in only 10 to 15 companies, the small short-term holders usually disinvest after short intervals for profit-taking. Their anxiety to avoid any loss became the cause for a sudden dip after a short bullish period in all stock markets, they remarked.
As during the stock market boom, explanations for the current slide in the shares market were galore. The SECP chairman was asked whether the tight regulatory controls and structural changes implemented in the market by the commission were instrumental in delaying a crisis.
“The nominal rise and fall of stock markets,” he replied, “is not a major concern for regulators whose job is to ensure that there was no foul play and there are no systemic crises.” In his view, the major reason for the increased investor confidence underlying the boom was the implementation of structural reforms focused on governance, transparency and efficiency of the market.
Furthermore, the macroeconomic reforms of the government created a backdrop for these reforms, which have been supported by higher levels of liquidity, macroeconomic stability and interest rate rationalization, he said.
Asked who should take credit for the boom or be blamed for the present fall, Mirza made it “unequivocally clear” that SECP on no occasion took any credit whatsoever for the rise in the market.
In fact, he added, “no regulator should claim any influence over market movements, direct or indirect. It would be stupid for us to suggest that regulatory actions or measures on reforms have carved the market to go up.”
Nevertheless, he stated, “the SEC is vigilantly observing the market and is pleased to see that the regulatory mechanisms put in place are working towards minimising elements of systemic risk and other possible defaults.”
Stock markets, SEC Chairman further remarked, were 90pc sentiment and only 10pc economic fundamentals. As long as integrity of the market was ensured, the investor confidence would remain there — the single most important factor for stability of any stock market. Hence his confidence that the current downturn would prove to be a passing phenomenon.
In order to understand the previous run of bulls and current stampede of the bears, it was essential to take into account the fact that the stock market of Pakistan was a market with the highest turnover of shares in the world. Thus against the overall market capitalisation of Rs 600 billion, the average turnover in all three stock exchanges was 154 million shares a day in 2002.
Despite the continuous bullish trend of previous year, the activity in the primary market remained dull and failed to perform its main function of capital formation as an economic agent. The only significant contributions towards capital formation have been through corporate debt instruments called Term Finance Certificates.
Moreover, only four new equity issues raised Rs6.3bn. The foreign portfolio investment, however, did pick up with inflow of $500 million as against the dismal figure of $150m in 2001.