Chinese investors keen to pour $2 billion into PSX

Need permission from regulators in Beijing before making investment

KARACHI: Chinese investors have expressed keen interest in pouring at least $2 billion into Pakistan's stock market.

"Small Chinese stockbrokers having $52 billion in assets under management have shown interest in investing at least $2 billion in shares at the Pakistan Stock Exchange (PSX)," announced PSX Chairman Sulaiman S Mehdi at a press briefing on Friday, as the bourse was being integrated with regional and international stock markets at a cost of $2.85 million.

The Chinese investors expressed the interest in a meeting held last week in China.

Low share prices hovering at 6.5 multiples at the PSX and average dividend yield of 6.2% encouraged them to consider injecting money into the PSX, he said.

Now, the government of Pakistan has to persuade the Chinese government to let its investors invest in Pakistan. Beijing laws require Chinese investors to take permission from the regulators for investment in other countries.

Mehdi said the PSX had signed a contract with the Shenzhen Stock Exchange (SZSE) to acquire a new trading and surveillance system at a cost of $2.85 million.

The new system would connect the PSX with three Chinese international stock markets including the SZSE, Shanghai and Hong Kong exchanges. The linkage will allow cross-listing of companies and attract foreign investment in each other's stocks.

Earlier, a Chinese consortium acquired a 40% stake in the PSX - the company running the stock trading platform - at Rs28 per share in January 2017.

A high PSX official told The Express Tribune on the sidelines of a conference that the bourse had written three letters to the Ministry of Finance, requesting it to initiate talks with the Chinese government for seeking approval for Chinese investment in the PSX.

"However, no progress has been made so far," he said. "Now, we are planning to take a delegation to meet Prime Minster Imran Khan in this regard."

The PSX chairman revealed that the new trading and surveillance system would be fully deployed over the next 12 to 14 months. "However, an interim surveillance system will be in place by February 2020."

Earlier, the apex regulator - Securities and Exchange Commission of Pakistan (SECP) - had given the PSX a deadline to deploy a surveillance system by December 2019.

The new system will replace the existing Karachi Automated Trading System (KATS). Initially, both the trading systems will run parallel for the stockbrokers and investors.

"The new trading system will completely replace the existing one after users get fully familiar with the new system," Mehdi said.

PSX had shortlisted two global stock markets for buying the trading and surveillance system, including the London Stock Exchange.

The offer and terms and conditions of the SZSE were found suitable for the PSX. "PSX will pay the price ($2.85 million) in installments over a period of five years. Moreover, it will be a one-time cost rather than paying the system licence renewal fee every year," he said.

SZSE is the third largest stock market in the world in terms of trading value. It is also part of the Chinese consortium that has acquired 40% stake in the PSX.

The new trading system will bring the PSX on a par with international stock exchanges. The formal contract signing took place in Shenzhen, China earlier this week during the visit of a PSX delegation, headed by Mehdi.

The agreement with SZSE will help in attracting regional and international investment to the PSX in coming months and years.

"The new system will open up Asian markets to the PSX and Pakistan for business opportunities," he remarked.

First ETF in Jan

Mehdi announced that the first-ever exchange-traded fund (ETF) was going to be listed at the PSX by mid-January 2020, which would open a new avenue for domestic and foreign investment in the market.

The ETF will initially be a combination of the top 10-12 stocks listed at the PSX. Its unit price will be equivalent to the average prevailing price of the 10-12 stocks in real time. Investors will trade its units like shares.

"People invest in ETFs globally as the risk of losing money remains low and diversified. Anyone can buy ETFs with a small amount of money compared to the need for much more funds to buy 10-12 stocks at a time," he said.

Two leading domestic financial institutions would get the ETF listed by mid-January. "The SECP is expected to give the regulatory approval soon."

Published in The Express Tribune, November 30^th, 2019.

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