Pakistan's Stock Market: A lost investment opportunity?
Many feel that the stock market is a club for the aristocrats who bet their fortunes away. That is not the real case.
The phrase ‘stock market’ has a charm around it, which grabs the attention of almost any listener anywhere in the world. In Pakistan, however, it portrays a picture of an exclusive club for the aristocrats who bet their easily earned fortunes in the corporate bazaar. However, perceptions are often incorrect and the same is the case with the Pakistan’s stock markets, where the consequences usually involve lost opportunities to rake in money.
A recently published report in The Economist concluded that the proportion of capital to labour is rising in developing economies. Simply put, to employ your human capital, as an entrepreneur, provides more financial benefits as compared to selling out your skills to someone else as an employee.
Hence, the route to participating in the former’s growth is to take a share in the business – which shows how share trading originated. The platform to partner into the business prospects of a company is through the stock market (of listed companies’ shares, of course).
People belonging to different professions should, therefore, be encouraged to allocate a part of their wealth in the share markets. Unfortunately, despite phenomenal returns, the participation of retailers – and the masses – remains meagre, as only a few hundred of investors have trading accounts. Therefore, it is the very absence of the people that paves the way for the platform to remain concentrated within the hands of few big market players.
Common people, with local businesses and a reasonable profit outcome, can effectively take part in this stock market. It is not some rocket science; it’s simply a good business strategy.
The key reasons, which have made Pakistan’s stock market one of the best performing markets in the world, are untapped human capital of 180 million, increasing rate of urbanisation and a stronger sample of the listed companies, which have consistently enjoyed the higher earnings growth rates.
While developed nations are contemplating over greying and diminishing their working population - as in Japan, France and Brazil - Pakistan offers a huge consumer market that can lead to an accelerated growth rate for potential investors. It is, therefore, no surprise that a number of Pakistani funds were classified among the Top 100 funds in the world and in the current calendar year as well, Pakistan ranks as the second best stock market – being second only to Japan.
The absence of excessive leverage (buying something worth Rs1000 while possessing only Rs100) has been a laudable reform undertaken by the regulators to ascertain the reduced risks and increased insulation of the investors’ money. As an experienced fund manager, I have personally observed that post 2008’s crisis, many of the brokers/investment advisors have confessed to have become well-versed with the underlying businesses of the company in order to ensure that the clients’ money is up for investment and not for gambling on “tips”.
Such steps have enabled the Karachi Stock Exchange (KSE) 100 Index to rise by 200% from 8000 to 24000 points in three and a half years.
There are various ways to invest in the stock market. You can either set up a brokerage account of your own, which requires a minimum investments worth Rs25,000. You can also hire the expertise of asset management companies for an annual nominal fee (2% of the net assets, Rs1,000 on an investment worth Rs50,000).
The latter is a recommended approach for individuals who are not equipped with skills to identify stocks with stronger business potential. Moreover, asset management companies are continuously monitored by the regulators (SECP) which set up various limits in order to reduce risks and ensure that the clients’ money is effectively utilised which, in turn, enhances the general “trust-factor” among investors.
Here a few more tips from a professional investment manager, as to what “Don’ts (or Never’s)” the current and prospective investors should keep in mind.
To conclude, despite the embedded pessimism around us, Pakistan does offer innumerable chances to increase ones wealth. Above listed recommendations are basic rules of thumb which, if religiously followed, can surely contribute towards reducing the gap between the riches and the middle class. At the end of the day, Pakistan’s resources are for Pakistanis. The sooner the general Pakistani realises this fact, the sooner we can redeem our individual (and collective) worth and emerge as a contender among the emerging markets of the world.
A recently published report in The Economist concluded that the proportion of capital to labour is rising in developing economies. Simply put, to employ your human capital, as an entrepreneur, provides more financial benefits as compared to selling out your skills to someone else as an employee.
Hence, the route to participating in the former’s growth is to take a share in the business – which shows how share trading originated. The platform to partner into the business prospects of a company is through the stock market (of listed companies’ shares, of course).
People belonging to different professions should, therefore, be encouraged to allocate a part of their wealth in the share markets. Unfortunately, despite phenomenal returns, the participation of retailers – and the masses – remains meagre, as only a few hundred of investors have trading accounts. Therefore, it is the very absence of the people that paves the way for the platform to remain concentrated within the hands of few big market players.
Common people, with local businesses and a reasonable profit outcome, can effectively take part in this stock market. It is not some rocket science; it’s simply a good business strategy.
The key reasons, which have made Pakistan’s stock market one of the best performing markets in the world, are untapped human capital of 180 million, increasing rate of urbanisation and a stronger sample of the listed companies, which have consistently enjoyed the higher earnings growth rates.
While developed nations are contemplating over greying and diminishing their working population - as in Japan, France and Brazil - Pakistan offers a huge consumer market that can lead to an accelerated growth rate for potential investors. It is, therefore, no surprise that a number of Pakistani funds were classified among the Top 100 funds in the world and in the current calendar year as well, Pakistan ranks as the second best stock market – being second only to Japan.
The absence of excessive leverage (buying something worth Rs1000 while possessing only Rs100) has been a laudable reform undertaken by the regulators to ascertain the reduced risks and increased insulation of the investors’ money. As an experienced fund manager, I have personally observed that post 2008’s crisis, many of the brokers/investment advisors have confessed to have become well-versed with the underlying businesses of the company in order to ensure that the clients’ money is up for investment and not for gambling on “tips”.
Such steps have enabled the Karachi Stock Exchange (KSE) 100 Index to rise by 200% from 8000 to 24000 points in three and a half years.
There are various ways to invest in the stock market. You can either set up a brokerage account of your own, which requires a minimum investments worth Rs25,000. You can also hire the expertise of asset management companies for an annual nominal fee (2% of the net assets, Rs1,000 on an investment worth Rs50,000).
The latter is a recommended approach for individuals who are not equipped with skills to identify stocks with stronger business potential. Moreover, asset management companies are continuously monitored by the regulators (SECP) which set up various limits in order to reduce risks and ensure that the clients’ money is effectively utilised which, in turn, enhances the general “trust-factor” among investors.
Here a few more tips from a professional investment manager, as to what “Don’ts (or Never’s)” the current and prospective investors should keep in mind.
- Never invest all of your savings in the stock market - create a diversified portfolio.
- Never become a short term trader - do not gamble.
- Never put all your eggs in one basket - keep more than four stocks to reduce risks.
- Never take the leverage that you cannot afford - know the depth of your pockets.
- Never take a share in the companies whose business models you do not understand – do not lend blindly.
- Finally, never invest through unregistered people and hire the expertise of professional investment advisors.
To conclude, despite the embedded pessimism around us, Pakistan does offer innumerable chances to increase ones wealth. Above listed recommendations are basic rules of thumb which, if religiously followed, can surely contribute towards reducing the gap between the riches and the middle class. At the end of the day, Pakistan’s resources are for Pakistanis. The sooner the general Pakistani realises this fact, the sooner we can redeem our individual (and collective) worth and emerge as a contender among the emerging markets of the world.