Investors abandon PSX amid falling returns and ghost measures

April 17, 2019 (MLN):  The Pakistan Stock Exchange (PSX) has lost an alarming number of investors in the five years prior to June 2018, as they came down from 318,565 investors in March 2013 to 238,763 investors by the end of Fiscal Year (FY18), marking a tragic loss of over 79,800 investors.

The number of investors in PSX dropped by 2.8% in fiscal year 2018 (FY18) alone as 6,995 stakeholders opted out of investment, when compared with the investor-count previous year.

Generally, the investor accounts for PSX are classified into five categories namely; Individual Investors, Corporate Company, Corporate/Individual Broker, Fund/Others and Foreign Individual.

In contrast with FY17, over 7,900 individual Investors ceased to participate in PSX in FY18, thus bringing down the United Identification Number (UIN) count for individual investors to 225,354, from 233,327.

Among all other categories, the Individual UIN’s recorded the most impactful decline. Apart from this, Corporate/ Individual Broker UIN decreased from 302 in FY17 to 263 in FY18.

However, participation from corporate companies and funds grew over the year.

It is pertinent to note here that in order to make trading at the Exchange transparent, the PSX sold 40% of its strategic shares to a Chinese consortium around the end of 1HFY17.

The consortium had made the highest bid of Rs.28 per share for 320 million shares on offer, while the value of the transaction was calculated to be Rs.8.96 billion ($85 million).

This consortium comprises three Chinese exchanges — China Financial Futures Exchange Company Limited (lead bidder), Shanghai Stock Exchange and Shenzhen Stock Exchange. In addition to this, the consortium contains two local financial institutions as well, namely Pak-China Investment Company and Habib Bank Limited.

Unfortunately, many individual investors backed down as the Chinese Consortium entered the frame. This also coincides with the stock market’s negative returns in FY17 and FY18, which was noticed for the first time in a long while.

So what drove the investors out of the exchange? As can be seen in the graph above, the total investor count has not shown a drastic change since 1QFY16 when the total UIN’s recorded were 240,792. The cited trend began about a year and half before the Chinese consortium became an integral part of the Exchange.

In last seven years, the number of participants in the Exchange diminished by over 8%.

The loss of TREC holders in the last 3 years is attributed to the merger of Pakistan’s three stock exchanges (Karachi, Lahore and Islamabad) in January 2016, into the Pakistan Stock Exchange (PSX).

The thought behind this merger was to promote privately owned and operated stock markets so that necessary investment in upgrading the infrastructure of the exchanges could be mobilized and to restrain the power of the large brokers to manipulate the market and engage in unethical trading practices.

Therefore, a number of brokerage houses surrendered their trading licenses following the merger. This brought down the Corporate/Individual Broker count from 348 to 263 by the end of FY18. In fact, following the merger, this category has recorded continuous shedding every quarter.

This is reflected in the graph below.

Over the last many years, the government has put in negligible efforts to draw fresh investors to the domestic equity markets. While government officials verbally prompt investors to participate in stock trade every now and then, it seems like these words of encouragement are obstinately insufficient and lack a boost of surety that investors broadly need.

Under present circumstances when the stock market is highly volatile and sensitive to negative sentiments, any rational investor would need sturdy incentives to invest in the market. Therefore, the government must come up with solid policies and measures to widen the investor volume.

Copyright Mettis Link News

Posted on: 2019-04-17T12:29:00+05:00