The Pakistani government has decided to put together a fund with contributions from banks and insurance firms to buy stocks through a state-owned asset management company, according to the SECP.
The fund, proposed by brokers this month, will be similar to the one that helped stabilize the Karachi market after the 2008 financial crisis reported Bloomberg.
“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 in an interview with Bloomberg.
Pakistan’s return to emerging-market status at MSCI in June 2017 didn’t do favor the 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.
So the government has decided that it has to take action to stop the $51 billion rout in the country’s stock market since its entry into MSCI Inc.’s indexes two years ago. So they have decided to put together a fund similar to the one that helped stabilize the Karachi market after the 2008 financial crisis.
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 957 points in intraday trading, set for the highest level in almost a month of 35,906 points.
The Securities and Exchange Commission 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.
Sabzwari, a former equity-sales director at Credit Suisse Group AG who was named the 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, a lot more than market support fund,’’ said Sabzwari.