‘Capital market reforms make Pakistan attractive for FDI’

KARACHI: Certain effective checks and systematic changes recently applied by the Securities and Exchange Commission of Pakistan (SECP) bring transparency to the Pakistan Stock Exchange (PSX) and brokers business.

Thus, Pakistan becomes a big attraction, especially for foreign investors. Economic indicators of the country were positive, said Umer Pervez, executive director, Research and Business Development, AKD Securities Limited, in an interview with APP.

China-Pakistan Economic Corridor (CPEC) had also changed the sentiments. The liquidity in capital market had increased. The net selling in the capital market had significantly jumped up, which was absorbed by local investors and non-business finance companies (NBFC), he added.

He expressed satisfaction over rise in the capital market and 20 percent minimum return. The business sentiments had witnessed 50 to 60 percent improvement as a result of better law and order situation and political stability in the country, he added.

Pervez said the economic growth in the country is mainly CPEC-related. "There were certain risks in the capital market and we had to depend on commercial borrowing. However the market was positively pursuing,” Pervez added.

The expert of capital market recalled that from 1992 to 2008 Pakistan’s capital market was one of the emerging markets on the world screen. After global finance crises, Pakistani market was put under the floor (at low profile). However after the market reforms in Pakistan introduced by the present government, the corporate disclosure was strong. This helped Pakistan regain its position.

In January 2016, the Modern Index Strategy Indexes (MSCI) announced to include Pakistan among the emerging capital markets category. The sentiments were good. Last year, 46 percent return was posted on investment in the capital market.

In November and December 2016, the market boomed with return up to 50 percent after Pakistan Tehreek-i-Insaf (PTI) called off its sit-in, he added. The market risks and assets under management (UMS) determined the equity and deal with the overall position.

The UMS were up 28 percent and the equity had enhanced 50 percent. The investment diverted to equities from real estate sector due to certain irritants cropped up there as a result of certain decisions and policies of the Federal Board of Revenue (FBR), which included introducing new formula for valuation of property and taxation accordingly.

The estate dealers rejected the Section 3 of the Income Tax Ordinance, which has been amended. The estate agents from across the country had been voicing their reservations over this issue, he said, adding that from July 2016 to November 2016, prices in real estate dropped 40 percent and this caused capital flight.

Pervez welcomed the huge investment of $8.9 billion in Pakistan Stock Exchange (PSX) by Chinese consortium and two local companies – Pak-China Investments and Habib Bank Limited (HBL). Chinese consortium purchased 30 percent shares of PSX and the two local companies had five percent shares each. The bids were high at Rs28 per share.

“This foreign investment had further strengthened our capital market capacity.” He said, at present, the corporate profitability in Pakistan is 14 to 15 percent, while, last year it was in the negative territory.

The price to earnings (PE) ratio is 10 percent. The discount at PE rate is 30 percent. From June 2017, the revival on this account is expected.

Pervez said that import cover is good enough to finance six months import bill of the country. The rupee is stable and foreign direct investment inflows, especially from China, are very good. This FDI is mainly coming to energy and infrastructure sectors.  He foresaw at least $300 million more investment in Pakistan in the near future.

He was also confident that the textile industry would also take off after the announcement of the export policy by the government, which is expected soon. He listed the exports of the country, remittances from Overseas Pakistanis, FDI and loans main contributors to building capital market.

The capital market researcher emphasised on the implementation of incentives package for the overseas Pakistanis that was announced by the government to encourage inflows from them.