Pakistan’s stock exchange resembles a markhor. Imagine it, hearty and proud, holding itself in the manner befitting such a noble animal, such a tough fighter. Imagine it, bold and kingly, hit by a truck on the side of some anonymous stretch of motorway. Imagine it, still and silent, lying there for years on end. Its eyes are glassy and the stale smell is terrible. Flies abound. No one weeps for the markhor. Only stupid animals wander on roads.
It’s difficult to say when the PSX was hit by a truck and ended up in its current foul state of decay. Maybe it was never alive. But as far as legitimate investments being allowed to foster go, it flat-lined a long time ago. Then again, isn’t this just the way things go? The narrative of the broken exchange system is hardly a new one. From Amsterdam to New York, stock exchanges go through phases (or eras) of massive corruption before a government body steps in and enacts legislation like the Securities Exchange Act of 1934. To this day, the Western world fights a tedious war on acronyms: HFTs, CDOs, and MBSs via the SEC, FBI, and FED.
Unfortunately, while high finance may be as intensely boring and cyclical as locally-themed road kill, it is also important and bears paying attention to. Exchanges are how a nation’s corporations are able to raise money and provide better products and services. You, the people, invest in companies and they get your money. They ask for money now so they can pay you back later. If they do well then you see a return on your investment. Everyone wins. It is a tremendous system founded on the principle of time value of money. If I am losing you, let me win you back with another metaphor.
The cymothoa exigua is a vile parasite that removes a host fish’s tongue and then supplants itself in its place. This beast gorges on the fish’s rightful food and provides nothing of value. Yet it is a class of species above certain PSX brokers. These PSX brokers work often together to lift huge chunks of money off of the outside (honest) investor by utilising lazy tactics that New York invented in 1920. A century behind the curve, the broker unapologetically eats your lunch while pretending to be but a bastion of service, a holy provider of liquidity, a simple soldier making a market. But he is not. He is the furthest removed thing from pushing forward an agenda of honest capitalism. You place a large order? He puts in his order first to take advantage. You invest based on market trends? He makes them up with his buddies by tossing chunks of equity back and forth between themselves like a financial rugby.
Academics refer to these activities politely as collecting manipulation rents, front-running, and pump-and-dump schemes. You might have heard of them in less civil terms.
Most people may feel a lack of concern for this phenomenon. That the financial system of Pakistan is as broken and corrupt as the governing one is hardly a surprise. But one should find a spurious anger in a broken market. How much anger? About $100 million worth (10% of market cap). That’s the amount parasitic brokers implementing manipulative schemes manage to “expropriate” from masoom shareholders looking to invest savings. 100,000,000. That’s eight zeros. Nine digits. Per year.
That’s so many zeros that you could build more than a half-thousand Minar-e-Pakistan’s with it.
That’s so many zeros that in less than six years they’ll be able to buy Somalia. They shouldn’t. That won’t be good for any party involved. But they could.
That’s so many zeros that they could buy three Learjet 85s, crash them into each other and still buy another and then a few restaurants on M M Alam Road. It would make for a frighteningly odd portfolio. But they could.
But, beyond possessing a base sense of morality, why should you care if you do not invest in companies in Pakistan? Because then the scourge of apathy lends itself to simple reactions in the market. Companies stop listing on exchanges (as they have) because they know that you will not invest (as you haven’t) and they will not be able raise capital. Those that do list find themselves victims of the aforementioned brokers. Some companies delist. They stop producing goods and services of the same quality. They raise prices to stay alive. Now you care. But it is too late. The markhor is dead. The fish is dead. The PSX is ugly and broken.
Published in The Express Tribune, November 7th, 2017.
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