Adil Najam
On Tuesday the Karachi Stock Exchange’s (KSE’s) KSE-100 Index – Pakistan’s equivalent to the Dow Jones Index – broke the psychological barrier of 15,000 for the first time. At the time of writing this (on what is Wednesday morning in Pakistan) the Index remains well above that mark.
The rise of the stock market(s) in Pakistan in recent years has been phenomenal. Much of this matches the rise of emerging markets all over the world, but the rise over the last year is particularly phenomenal given just how depressed, depressing, uncertain and unclear the politics of the country has been. My friends who work in the financial sector tell me that money can be made from bad news as much as from good news. I am sure they are right, though I am not sure if I understand all the nuances of how.
But it still intrigues me why and how the market in an economy like Pakistan – where the stock market itself is rather small in terms of size as well as participation – works in relation to what is happening in the society at large. The charts, and news, clearly indicate that the stock exchange in Pakistan has not been oblivious to the political and socio-economic upheavals of the last many months. But the direction seems to have been clearly upwards and it is not clear just how much of those events are reflected in the market.
One is used in larger markets (USA, Europe, Japan) to seeing the happenings in society and politics to have deep and immediate impacts on the market fluctuations. Is it the same in Pakistan? Or is it that because so many fewer people are actually invested in stocks that the stock market’s rhythms are less intertwined with local happenings and more with global and international happenings (especially if much of the capital flow is from international investors)? And, if, indeed, the stock market in Pakistan is as much of a barometer and reflection of what is happening in the country, then what is it that the market has been telling us all year, and is telling us now?
I know that many of our readers have far greater expertise in this area. Maybe they can help me and others decipher the meaning of all of this better.
(Graphs from Bloomberg)
Mr. Adil,
Can you please confirm whether the following figures are true(or this journalist exists in pakistan) or just another propoganda by indians to de-moralize pakistanis?
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This is written by a Pakistani journalist… (By Dr Farrukh Saleem 12/9/2007 – Islamabad-based freelance columnist)
Here’s what is happening in India :
The two Ambani brothers can buy 100 percent of every company listed on the Karachi Stock Exchange (KSE) and would still be left with $30 billion to spare. The four richest Indians can buy up all goods and services produced over a year by 169 million Pakistanis and still be left with $60 billion to spare. The four richest Indians are now richer than the forty richest Chinese.
In November, Bombay Stock Exchange’s benchmark Sensex flirted with 20,000 points. As a consequence, Mukesh Ambani’s Reliance Industries became a $100 billion company (the entire KSE is capitalized at $65billion). Mukesh owns 48 percent of Reliance.
In November, comes Neeta’s birthday. Neeta turned forty-four three weeks ago. Look what she got from her husband as her birthday present:
A sixty-million dollar jet with a custom fitted master bedroom, bathroom with mood lighting, a sky bar, entertainment cabins, satellite television, wireless communication and a separate cabin with game consoles. Neeta is Mukesh Ambani’s wife, and Mukesh is not India’s richest but t he second richest.
Mukesh is now building his new home, Residence Antillia (after a mythical, phantom island somewhere in the Atlantic Ocean). At a cost of $1.5 billion this would be the most expensive home on the face of the planet. Mukesh’s new family residence, for a family of six, is expected have staff of 600 to
care for the family.
In 2004, India became the 3rd most attractive foreign direct investment destination. Pakistan wasn’t even in the top 25 countries. In 2004, the United Nations, the representative body of 192 sovereign member states, had requested the Election Commission of India to assist the UN in the holding elections in Al Jumhuriyah al Iraqiyahand Dowlat-e Eslami-ye Afghanestan. Why the Election Commission of India and not the Election Commission of Pakistan? After all,
Islamabad is closer to Kabul than is Delhi .
Imagine, 12 percent of all American scientists are of Indian origin; 38 percent of doctors in America are Indian; 36 percent of NASA scientists are Indians; 34percent of Microsoft employees are Indians; and 28 percent of IBM employees are Indians.
For the record: Sabeer Bhatia created and founded Hotmail. Sun Microsystems was founded by Vinod Khosla. The Intel Pentium processor,that runs 90 percent of all computers, was fathered by Vinod Dham.Rajiv Gupta co-invented Hewlett Packard’s E-speak project. Four out often Silicon Valley start-ups are run by Indians. Bollywood produces 800 movies per year and six Indian ladies have won Miss Universe/Miss World titles over the past 10 years.
For the record: Azim Premji, the richest Muslim entrepreneur on the face of the planet, was born in Bombay and now lives in Bangalore. India now has more than three dozen billionaires; Pakistan has none (not a single dollar billionaire).
The other amazing aspect is the rapid pace at which India is creating wealth. In 2002, Dhirubhai Ambani, Mukesh and Anil Ambani’s father,
left his two sons a fortune worth $2.8 billion. In 2007, their combined wealth stood at $94 billion. On 29 October 2007, as a result of the stock market rally and the appreciation of the Indian rupee, Mukesh became the richest person in the world, with net worth climbing
to US$63.2 billion (Bill Gates, the richest American, stands at around $56 billion).
Indians and Pakistanis have the same Y-chromosome haplogroup. We have the same genetic sequence and the same genetic marker (namely: M124).
We have the sam e DNA molecule, the same DNA sequence. Our culture, our traditions and our cuisine are all the same. We watch the same movies and sing the same songs. What is it that Indians have and we don’t?
**************
INDIANS ELECT THEIR LEADERS
The way the KSE has disproportionately risen over the last few years shows that it is not a good barometer of our economic performance. The govt regularly cites the index as an indicator of its economic performance, but this reflects a dangerous trend. The govt’s main goal with regards to the stock exchange should be to make it a place where serious investors can invest in businesses on the basis of their fundamentals. It should not be to make the index rise out of line with the fundamentals due to speculative inflows.
The following two things are imediately needed to bring some sanety.
1. In addition to the index, a new indicator needs to be quoted regularly. This would be a measure of the degree of speculation and short-term investment in the stock exchange.
Formula:
total trade volume in the stock exchange over a specified period (say a month) / average market capitalization.
Called the market turn over ratio, this will give how many times each share is traded over the month on average.
Alternatively, we could use
no of days a share is held on average = 30 / market turn over ratio
= 30 * average total market capitalization / total amount traded in the stock exchange in the month.
This would give the number of days a share is held by an investor on average. If this number is very small, it would indicate a high degree of speculation in the market. If the number is on the higher side, then it would mean that there is more solid investment as opposed to mere speculation.
This figure needs to be quoted for the whole stock exchange as well as for all individual shares.
2. The second thing is a substantial capital gain tax that is inversely proportional to the time over which the shares are held by the investor before being sold off. Such a policy would amount to taxing short-term and speculative inflows, which are not very good for the stock exchange and the economy.
The market’s telling us that it likes stability. Anyway, the stock market is not an accurate barometer of the quality of life of the common man. The situation is actually somewhat analogous to that in the U.S.: companies and individuals have made record profits since the last recession but the middle class has actually slid into more trouble because energy, food, and other costs have gone up and wages have not kept up with the pace.
Also, the major players in the Karachi stock exchange definitely do not have “clean hands” …there have been numerous allegations of scandals and of buildings being set on fire to destroy evidence, etc etc.
KSE is controlled by few highly influential money managers who manage the portfolio of the super rich and they manipulate the market to their advantage.
adil:
you or someone else can perhaps explain this: why does KSE behaves in isolation?
i followed the indices of dow jones, nasdaq, london, tokyo, hong kong, sensex and even as a layman could see a pattern
usually, as dow jones goes up or down the other market indices mirror it
the one exception is KSE 100 … as if it is oblivious of market forces around the globe
why?