Directors of Pakistan Stock Exchange (PSX), senior brokers and representatives of mutual funds held a meeting with the Prime Minister of Pakistan at the Governor House to discuss the issues confronting the equity market.
A market support fund of Rs. 20 billion should be set up under the management of National Investment Trust (NIT) to revive the stock market, stakeholders told Prime Minister Shahid Khaqan Abbasi on Saturday.
The Prime Minister directed the concerned authorities to set up a committee under the chairmanship of Sindh Governor Mohammad Zubair, which should forward the demands of market participants to the prime minister for review.
The participants explained to the prime minister that a similar support fund was also set up during the 2008 stock meltdown under the aegis of NIT.
The asset manager was provided with a bank guarantee of Rs. 20 billion by the government to raise funds from state-owned financial institutions.
Mutual funds, including NIT, are currently sitting on piles of cash. Arif Habib, former chairman of the stock exchange, praised the premier for patiently listening to the woes of market representatives.
The brokers fished out figures and laid them before the prime minister, noting that the stock market has lost as much as $20 billion since its peak. The government’s investment was eroded by one-third, or roughly $6 billion.
The market representatives also demanded that the withholding tax on bonus shares should be levied on face value instead of the market price.
Stock brokers also lamented that their withholding tax at 0.01% – which was previously adjustable – was raised in the budget to 0.02% and treated as a full and final settlement.
The KSE-100 index was at 20,000 points when the PML-N government assumed office. Its price-to-earnings ratio was 8.5 times at the time.
The panel of brokers and mutual fund managers also took exception to the ban on the buying of the PSX stock by foreign investors.
Chinese strategic investors who had bought 40% majority shares at Rs. 28 a piece are concerned about the current discounted market value of Rs. 19 and are keen to buy more shares to average out.
Political uncertainty, not financial fundamentals, is responsible for the market crash according to the experts. Pakistan’s stock market index is now down 25% from its peak earlier this year.
Last week, Pakistan Stock Exchange (PSX) shed 1,466 points and dropped below the psychological level of 40,000 points, while losses stood at 17%.
Experts believe that the political hammering will not end but is expected to continue to take its toll on the market in the coming weeks. Still, they are hopeful that some scrips may perform well and bring about a much-awaited change.
Most of the investors seem to have been distant from the market as their confidence was shaken amidst the political drama.
Mutual funds, individuals and brokers were net sellers with a cumulative outflow of $36.5 million. On the other hand, foreigners swiped the market, taking advantage of multi-year low trade value seen in most of the blue chips, with a total net inflow of $38.9 million.