Karachi: Pakistan’s government has decided enough is enough: the $51 billion rout in the country’s stock market since its entry into MSCI Inc.’s indexes two years ago must be stopped.
Prime Minister Imran Khan’s administration is putting together a fund with contributions from banks and insurance firms to buy stocks through a state-owned asset management company, according to the regulator. The fund, proposed by brokers this month, will be similar to the one that helped stabilize the Karachi market after the 2008 financial crisis.
That’s not all. The regulator has eased norms to allow companies to buy back more of their shares and is drawing up rules for allowing smaller firms and fintech startups to list with less stringent reporting standards. The measures aim to arrest a two-year slide that has made Pakistan the world’s worst-performing stock market.
“The fund is under serious consideration to be launched hopefully by next week to 10 days,’’ Farrukh Sabzwari, chairman at the Securities and Exchange Commission of Pakistan said in a phone interview. “You’ll get more color in the next few days” on the fund’s composition and size, he said.
Pakistan’s return to emerging-market status at MSCI in June 2017 proved to be a nightmare for investors, as it sparked outflows instead of the expected foreign inflows. The benchmark index has since slumped 31%, and trades at one of the lowest valuations for any market at just over six times projected earnings.
Traders in the Karachi are no strangers to government support measures. A similar fund by the National Investment Trust in early 2009 put Pakistan’s market on a recovery path. Between the collapse of Lehman Brothers in September 2008 and the nation’s upgrade to an emerging market, Karachi’s benchmark index surged 300% in dollar terms, the best stock-market performance in the world.
The market cheered the proposal, with the benchmark KSE-100 Index surging 2.9% to the highest level in almost a month. “Investors are upbeat after the chairman commits a timeline for the fund,” said Gohar Rasool, head of international sales at Intermarket Securities Ltd.
Uncertain Status
Pakistan is now barely visible in the emerging-markets universe, where giants like China and India attract all of investors’ attention. With a weight of a third of one percent in the benchmark index, the country is no more than a rounding error in global portfolios. The market has fallen below a key threshold required by MSCI to sustain its emerging-market status, though the index provider doesn’t plan to demote it anytime soon.
Pakistan’s economy is going through a familiar boom-and-bust cycle with growth slowing and inflation is rocketing after a deficit blowout. The nation secured a $6 billion aid from the International Monetary Fund this month to help to avert an economic crisis, the 13th bailout since the late 1980s.
Sabzwari, a former equity-sales director at Credit Suisse Group AG who was named chairman of the markets watchdog in December, said he received multiple requests from companies to buy back more of their shares after price-to-book ratios fell to decade lows. The new norms allow firms to repurchase their stock as long as they leave at least a 20% float, he said.
“Buyback also provides a lovely cushion, lot more than market support fund,’’ said Sabzwari. – Bloomberg
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I see Pakistan’s financial and economic difficulties as a rare moment in recent history when its civilian government can seek to persuade its entrenched military leadership to support a serious effort to normalise relations with India. Also, almost for the first time, one senses a reluctance or disinterest on the other side to pursue this opportunity.