Pakistan has three stock exchanges. The Karachi Stock Exchange (KSE), located in Pakistan's largest city and commerical hub, is the largest of the three. Four years ago, in 2002, it had been declared the "Best Performing Stock Market of the World."
Four years down the line, it remains one of the best performing markets in the world. As of March 31, 2006, 663 companies were listed with a market capitalisation of Rs3,257.062 billion (about Dh198 billion) and listed capital of Rs486.489 billion (about Dh30 billion). The KSE 100 Index closed at 11485.90 on March 31, 2006.
The KSE, Asia's second-best performing market last year after South Korea's KOSPI index, has plans to set up branches in New York, London and Dubai in the next four years to tap the demand from expatriate Pakistani and overseas investors.
"There are a large number of expatriate Pakistanis who want to have links with this market and are rich enough to do so," says Maudood Ahmad Lodhi, Managing Director, KSE.
Pakistan is wooing investment to fuel a $118 billion (about Dh433 billion) economy that Prime Minister Shaukat Aziz predicts will expand at an annual pace of eight per cent per year over the next five years.
Overseas investment in Pakistan's stock market more than doubled to $313 million (about Dh1,150 million) in 11 months until May this year, from $141 million (about Dh518 million) a year earlier, according to the central bank. More than 90 per cent of that money came from US-based investors.
Remittances from Pakistanis working abroad reached $4.1 billion (about Dh15 billion) in the first 11 months of the year that started July 1, more than 13 times the total overseas investments in shares.
To help increase investor confidence, the Karachi exchange will be converted into a public company by the end of 2007 and plans are afoot to list its shares overseas.
According to Lodhi, "The conversion will put us on the international map, make more resources available to us and give investors additional confidence in us because we will have to meet their listing criteria."
The KSE plans to hire an international investment bank to help value the bourse before a share sale. Six international banks, including Citigroup Inc., Merrill Lynch and Co. and JP Morgan Chase and Co. have been invited to apply.
A stockbroker membership on the 200-member KSE is valued at Rs.90 million (about Dh5.4 million), giving the bourse a total valuation of about Rs18 billion (about Dh100 million).
The KSE has charted out several plans to make its presence more visible and powerful. It wants to improve its image through better marketing, new investment products and improved governance.
All this may help combat overseas investors' negative perceptions of Pakistan. The idea is to showcase Pakistan as an investor-friendly destination.
On a global platform
The exchange will introduce a free-float index of 30 shares on a trial basis to address issues regarding the weighting of the existing index of 100 shares. It also plans to introduce index futures in early 2007 to give investors alternative products and help bring the market in line with international bourses.
Prior to that change, cash-settled futures contracts for 30, 60 and 90 days, will be introduced. According to Lodhi, who has meticulously detailed these plans, cash-settled futures contracts will initially be introduced in a single stock of Pakistan Telecommunication Co., the nation's biggest telephone-service provider, and later it will be extended to 30 stocks.
"We want to introduce new products one by one because people may not be aware of the pitfalls and could trade beyond their means," Lodhi cautioned. "We have to be prudent and ensure we don't land in a mess." Work on setting up the overseas branches will begin soon.
KSE began with a 50 shares index, and as the market grew a representative index was needed. On November 1, 1991, the KSE-100 was introduced and remains to date the most generally accepted measure of the exchange.
The KSE-100 is a capital weighted index and comprises 100 companies representing about 86 per cent of market capitalisation of the exchange. In 1995 the need was felt for an all share index to reconfirm the KSE-100 and provide the basis of index trading in the future.
On August 29, 1995, the KSE all-share index was constructed and introduced on September 18, 1995. The KSE has devised procedures for resolution of investors' complaints against members and between inter stock exchanges members.
Disputes between investors and members of the Exchange are resolved through the deliberations of the arbitration committee of the exchange.
The Lahore Stock Exchange (LSE) was born in October 1970 under the Securities and Exchange Ordinance (SEO), 1969, of the Government of Pakistan, in response to the needs of the provincial metropolis of the province of Punjab.
It started off with 83 members and was housed in a rented building in the crowded area of Bank Square in Lahore. It has now grown tremendously and has branches in the industrial cities of Faisalabad and Sialkot.
The Lahore Stock Exchange Total Return Index (LSETRI) calculates the performance of stocks assuming that all payouts are reinvested in the index on the ex-date.
The LSETRI assumes that if a component company issues bonus shares or announces a rights issue, it will increase the listed capital. Additionally, the LSETRI also assumes that all payouts by a component company are 100 per cent reinvested in the index.
Therefore, the LSETRI is adjusted against such payouts announced by any of the index constituents on its ex-date allowing the index value to remain comparable over time.
The LSE25 company index also calculates the performance of stocks assuming that all rights issues and bonus share issues only increase the listed capital. In the case of bonuses or rights, the prices of the shares are not adjusted as they are in the case of the LSETRI.
However, the LSE25 assumes that dividends paid out by a component company are not reinvested. In summary, in the LSE25, no price adjustments are made when any component company issues cash dividends.
The Islamabad Stock Exchange (ISE) is the youngest of the three stock exchanges of Pakistan. It became fully operational on August 10, 1992.
