JUNE 2013 - FEAS

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FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT JUNE 2013 KARACHI STOCK EXCHANGE CAPITAL MARKET DEVELOPMENT AND ECONOMIC OUTLOOK The macroeconomic landscape of the country was badly affected by devastating floods in July 2010, which directly affected about 20 million people, mostly by destruction of property, livelihood and infrastructure; thereby inflicted significant damage to the fragile economy. ADB approved a US$ 650 million loan to Pakistan which was used to rebuild the damaged infrastructure. Shortage of power and gas, escalating utilities costs, high borrowing cost exacerbated the situation for Large Scale Manufacturing as well as Service sectors. The fiscal position remained weak with poor revenue generation whilst expenditure escalated. Real GDP growth in the outgoing year was recorded at 2.4% as compared to 3.8% in the previous Fiscal Year. Nevertheless, our economy has shown strong capacity to overcome challenges originated from both internal and external economic environment while struggling towards achieving long term sustainable growth. Performance of the Market The market started in the FY 2010-11 with some positive note as LSE-25 Index starting from 3092.70 points. The market and the Index reached the lowest level of 2970.86 points of the period under review and closed at 3051.12 points at the close of the financial year. Local investors remained jittery while seeking clarity on the modalities of Capital Gain Tax (CGT). Investment in capital market during the period July-March 2010-11 by the foreign investors depicted a net inflow of US$ 301.5 million. Corporate profitability increased in year 2011 but profitability concentrated in few large companies in the Energy, Telecom and Banking sectors. During the period under review, seven Open end Funds were listed. Further, two companies, one TFC and one Participation Term Certificate were in the pipeline of listings. Two Closed end Funds were converted into Open End Funds. Twelve securities were delisted out of which three companies merged with other companies, seven companies went into Winding Up by Court Orders, one Open end Fund matured and fully redeemed and one Company was de-listed after the buy-back the shares by the sponsors. Total companies listed at LSE were 496 as compared to 510 companies in the previous year. The total listed capital increased from Rs. 842.596 billion (US$ 9.362 billion) to Rs. 888.190 billion (US$ 9.868 billion) as on June 30, 2011. Similarly, the aggregate market capitalization increased from Rs. 2,622.928 billion (US$ 29.143 billion) to Rs. 3,166.044 billion (US$ 35.178 billion) as on June 30, 2011. The volumes of the Exchange shrunk considerably i.e. by 66%. During the period under review, total share volume of regular market reduced to 1,124.762 million shares as compared to previous FY figure of 3,362.668 million shares. Complementing the efforts of members and listed companies in seeking to find better levels of optimum operational efficiency, LSE continued to identify areas of improvement as part of the Exchange’s present and future development. Key Information Contacts Government of Pakistan www.pak.gov.pk Ministry of Finance www.finance.gov.pk Privatization Commission www.privatisation.gov.pk State Bank of Pakistan www.sbp.org.pk Security and Exchange Commission of Pakistan www.secp.gov.pk CONTACT INFORMATION Contact Name Mr. Haroon Askari E-mail ha@kse.com.pk Website www.kse.com.pk PAGE 54
FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT JUNE 2013 KAZAKHSTAN STOCK EXCHANGE Kadyrzhan Damitov President KASE has completed several main projects in 2012 on its way to improvement and development of infrastructure, as well as the expansion of local market. 2012 has been a successful year for Kazakhstan Stock Exchange in terms of fulfillment of scheduled projects. Within the implementation and enacting main projects in 2012 KASE collaborated with its members, issuers, investors through different activities and continues working actively on establishment of bilateral and multilateral relations with foreign exchanges, international associations and financial institutions. Regarding the local projects of 2012, KASE worked on the alignment with the requirements of the new Law on Risk Minimization, which defined amendments to the existing legislation aimed at the major objectives such as the increase transparency of the stock exchange issuers and members activity, protection the rights and interests of investors, improvement of securities market infrastructure. During the working process KASE had to change its organizational structure and internal normative base. The reform process turned out to be quite labor-intensive and affected all the divisions of KASE. One of the main projects in alignment with the requirements of the new law on risk minimization is a new monitoring system of KASE members - their financial strength and solvency are under continuous control. There is a big volume of open data necessary for investors seeking a partner on Kazakhstan’s financial market on KASE website. Following the announcement by the Kazakhstani President in September 2011 the Government of Kazakhstan approved the Program aimed at partial privatization of the Sovereign Welfare Fund’s “Samruk-Kazyna” subsidiary blue-chip companies on KASE to enable Kazakhstani citizens to buy shares. The first IPO within the program was launched in November 2012 with KazTransOil (an oil transportation and pipelines company) as the first company to go public. With the announcement of the program the amount of retail investors’ accounts increased five times and it keeps growing very rapidly. Over 34 thousand retail investors and 10 accumulative pension funds of Kazakhstan took part in the subscription to shares organized by financial advisors and KASE. The combined demand for those shares exceeded the supply more than twice. Upon completion of the subscription to KazTransOil KASE successfully accomplished its role as trade organizer in the first stage of the nationwide program “People’s IPO”. The secondary market trading of KazTransOil shares on KASE remains active. Since the secondary market trading was launched on December 25, 2012 to the end of 2012 the trading volume has exceeded US$19 m, which is a very significant trading volume for Kazakhstani equities. As of the end of 2012 the price of KazTransOil shares increased by more than 14% followed by an insignificant decrease of 2% in January and February of 2013. KASE’s primary role aside from participation in working groups on the IPO process is book-running. For this reason, the exchange developed a special module in the Trading System to collect applications from the market participants, consolidate, process, generate reports and execute other functions related to performing the subscription. KASE also acknowledged that sudden significant increase in number of investors on the market and trading activity may require additional capacity for the existing trading system and introduced changes to increase its capacity by 20-30%. Last year KASE worked on introduction of new derivative products launching futures on most liquid shares. In addition, KASE received a license for clearing operations allowing it to clear deals on the exchange market. Elaboration of the Remote Access and DMA concepts, as well as development of the T+3 settlement cycle project realization scheme also took place in 2012. All the above-mentioned local projects required development of the IT systems including upgrade of the trading system and introduction of new modules and programs. IS2IN - an electronic system for exchange of electronic documents and provision of information about issuer to the investor was established, along with the new trading method “Subscription” introduced especially for the People’s IPO program. There were additional IT-developments related to DMA and Remote access introduction. Concerning the overall stock market indicators, following a drop of KASE index in 2012 by about 12.3% due to adverse conjuncture in the face of continuing instability on global markets, as well as by some issues in Kazakhstani bank sector and the harsh drop of one of the leading companies share price, in the beginning of 2013 KASE index has increased by 12-15% mainly due to increase in price of newly listed securities (KazTransOil and KCell) that became a part of the index due to their high liquidity. KASE is one of the key players in the capital market development process. Aside from the fact that the stock exchange plays an important policy role in defining listing and compliance standards for companies that wish to go public, the performance of a national stock exchange often taken as a proxy for the health of a nation’s economy. Thus, improvement of KASE performance and enhancement of its self-regulatory functions is an important policy goal focused at strengthening key partners and uniting efforts in favor of the capital market development. We continue to collaborate with international and internal financial institutions to improve KASE infrastructure and participate in global economic events to gradually gain worldwide recognition. In 2012 KASE signed an agreement with Wiener Boerse AG on joint calculation and promotion of Kazakhstani securities market indicators. One of the important projects planned for 2013 is full membership at the World Federation of Exchanges. KASE has already submitted the letter of intent, which was reviewed by WFE Board of Directors, and is preparing for successful implementation of the WFE accession procedure. PAGE 55
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