It’s a great gesture. Just like when a Doctor visits his patients at the hospital every morning when he starts the rounds. Patients feel great to see the Doctor. But what matters more is not his visit but what medicines he has prescribed to the patient prior to making visits everyday.
Asad Umar visited the Stock Market premises. All the brokers were jumping with joy. Not a single suggestion by the brokers was worthy of saying that they knew what to demand of the Finance Minister. All I heard was complaints. Complaints about low volumes. Complaints about market being in a disastrous period. Complaints about everything minus the solutions. When the patient can not describe his illness with details, no Doctor can fix the ailment.
The only good thing I heard was that the losses can be carry forwarded to the coming years. That is great. But those losses can only be offset by the profits. If there are no profits being generated, how can losses being carry forwarded have any benefits.
The root cause of the problem is lack of participation in the markets. 10 years ago we had the same number of investors, around 250,000 to 270,000 and today we have the same. This is the biggest cause of low volumes amongst many other reasons. Iran being a sanction ridden country with 40% of our population has 3.7 million stock market investors. We have the lowest Market Capitalisation to Investors Ratio in the world. Or GDP to investor ratio. Or population to investor ratio. No matter which we look at it. We are doomed.
The best solution to increase the number of investors in our markets is not by holding seminars in every city like the brokers do, it’s a start but not the solution. The solution is to link every Commercial Bank account with a brokerage account and give impulse based access to account holders for investing in the markets. With 30 million bank accounts in Pakistan, we can create at least 1 Million new investors of all sizes in the brokerage industry. Also by cutting the new account opening process by days into minutes. It takes minutes to open up a brokerage account in any developed market. Not even hours and definitely not days or weeks like Pakistan.
Government makes money on taxes from from the stock markets. Capital Gains Taxes. When there are no capital gains, there are no taxes for the government. The best thing to do right now is to reduce the CGT to entice people to invest in the markets. This is not the entire solution but it will definitely create a surge in volumes.
Create a government support fund for the stock market. Why ? Because the interest of the GoP is directly attached to the stock markets like no other country. GoP owns billions of dollars of stocks through its listed companies on PSX. And those companies play the biggest role or have the highest weightage in the Index of PSX. Meaning if these shares can be stabilised through buying by a government fund, the decline of the index can be somewhat controlled. America and 7 other countries around the world did the same thing after the 2008 financial crisis.
This stock market is going down because of two reasons. One, the momentum broke and two the bad economic picture surfaced right after the momentum broke. If anybody tells you that this market is down only because of political upheaval then I would beg to counter their argument by saying that they do not know how the markets work. Political upheaval absolutely drops a market but it also creates a buying opportunity with that drop and the markets go back up IF everything else in the economy is stable.
We have nothing stable. We
have a spiralling out of control Current Account Deficit. Lowest amount of
foreign reserves. Out of control
Circular Debt of the most index heavy listed oil companies. A directionless currency with further depreciation expected. Rising inflation. Higher interest rates, and higher interest rates are the biggest enemy of any capital markets except a few listed lending institutions. Higher oil prices in a country where most of the energy is based on Fossil Fuel, that most exporters are dependent upon and higher energy prices will cut into the profits of the listed companies.
What more is wrong can be debated upon till the end of time.
What is needed to be done to fix our markets is what we need to talk about. There is no quick fix. None. If anybody thinks that without capital markets reforms and without reforms at the SECP and The PSX along with policy support from the government, this market is going to turn around, they are living in a self created fantasy.
Specially if anybody thinks that a visit by a Finance Minister to a stock exchange is the ONLY solution to the problem, then their fantasy is a bigger one than of many in Pakistan. Visit with a concrete plan of action could have been the solution. Not a question answer session. Q&A time is gone. Long ago. QA time is here. QA meaning Quick Action time. Immediate measures time. Time to save our markets with concrete policies.
Otherwise, the bottom of this market is nowhere in sight to me. May Allah guide us. Ameen.
Author: Mir Mohammad AliKhan