KARACHI: The Pakistan Stock Exchange (PSX) has sought long-term investment from state-owned financial institutions in the larger interest of their clients and to prop up the bourse where stock prices have dropped to multi-year lows and are providing an excellent investment opportunity.
“Insurance firms and pension funds in the private sector are investing (in shares through the PSX) in the interest of their policyholders,” remarked PSX CEO and MD Farrukh H Khan in a telephonic interview with The Express Tribune.
“State-owned firms (like State Life, EOBI and National Investment Trust), which earlier used to make massive investment in the local bourse, have remained absent in recent years.”
PSX gave a presentation to the Ministry of Finance last week. Among several proposals, it recommended that the government should ask the financial institutions working in the public sector to pour capital into the PSX. “The government looked at it positively,” said Khan.
This will be a win-win situation for everyone, including the market, insurance policyholders and beneficiaries of pension funds in the long run.
This week, the market gradually saw the return of stability as a long phase of panic selling seemed to be over. Investors are cautiously buying stocks at attractive valuations.
The benchmark KSE 100-share Index has partially recovered, gaining 3,500 points to around 30,700.
Earlier, it lost over 8,000 points, or 21%, in the prior two weeks to hit a six-year low of around 27,200 last week.
The market saw the massive drop and the automatic halt to trading for hours in over half a dozen sessions under prevailing rules as the deadly coronavirus sent economic activities in Pakistan and around the world reeling about a month ago.
The central and provincial governments in Pakistan have imposed near-lockdown to prevent the spread of the virus as it is considered the most effective strategy to overcome the health crisis across the globe.
However, this has also forced companies to temporarily suspend production in some sectors including automobile, textile, oil refineries, cement and steel.
“Obviously, their (companies’) profitability will take a bad hit and their share prices will also be impacted,” said Khan, who joined the PSX a couple of weeks before the health crisis began in the country.
“Our discussion (with the government) focused on how to stabilise the market and the companies including the listed ones, and what kind of relief could be given to the companies, including the cut in benchmark interest rate,” he said.
“We should provide more relief to the system which, we think, may be needed. If we ‘under-compensate’ and keep the system tight, then it will take years to recover from the economic mess in the broader way,” he said.
“Later, when the situation normalises, policymakers can rationalise the measures, including the interest rate cut and other financial and monetary measures.”
At present, the policymakers will have to be flexible which they already are in Pakistan and around the world. They may keep initiating measures to support the system because the situation is worsening.
“Constitution of a fund for the stock market was not our recommendation,” he replied in response to a question. “Availability of liquidity is the key to unlocking opportunities in the market.”
He was of the view that financial institutions should follow international best practices.
“Pension funds and insurance companies remain the largest investors in stock markets around the globe. They receive funds from their clients and policyholders for 10-30 years. They have the ability to take a long-term view of the market,” he said.
“In the long run, equities have always offered the best return in Pakistan and across the globe. In March, the biggest buyers in the market had been the insurance companies,” he said.
“Whosoever buys shares today with a long-term view will stand to make huge gains. This opportunity will never be available again.”
There are dozens of large and small financial institutions with billions of rupees. Besides, mutual funds also remain big investors at the PSX.
PSX continues to function
The PSX management has made sure the market remains functional like other regional and global markets during the current crisis.
“We did not close the market because investors and unit-holders of mutual funds may need to withdraw their investment to make ends meet,” he said. “We cannot close the market. Once you close it, it will be very difficult to reopen it.”
“We have access to offices and alternative options to operate remotely, so what is the point in closing the market?” he asked.
PSX has learnt from its 2008 experience when the decision to close the market impacted it badly. Market participants and investors, everyone suffered huge losses.
“Pakistan has suffered a drastic impact on its image from it (market closure) and we have still not fully recovered from those losses,” he said.
The entire PSX team, in consultation with the Securities and Exchange Commission of Pakistan (SECP) and National Clearing Company of Pakistan Limited (NCCPL), has exercised all the available options to keep the market operational.
It is operating in compliance with government’s directives in relation to the COVID-19. Normally, according to him, there are around 200 people who work in the PSX building, however, since March 24, the number has been curtailed to less than 20. “Everyone is working from home and no one can tell the difference whether the people are working from home or in office,” he said.
“PSX has continued to operate through the main trading platform – Karachi Automated Trading System (KATS) – rather than the alternative Disaster Recovery (DR) system.”
Published in The Express Tribune, April 3rd, 2020.