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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2006
KARACHI STOCK EXCHANGE
M. A. Lodhi
Managing Director
During the year index had touched to all
time high at 12,274 points with a market
capitalization of over US$ 57 billion on
17 April 2006.
The Karachi Stock Exchange (KSE)
continued to perform well during the financial
year 2005-2006. The KSE 100 Index closed
at 9,989 points on June 30, 2006 with a
market capitalization of US$ 46.52 billion as
against 7450 points of the KSE 100 index
with the market capitalization of over 34.5
billion at the beginning of the financial year.
This translated to an appreciation of around
34% over the period. During the year index
had touched to all time high at 12,274 points
with a market capitalization of over US$ 57
billion on April 17, 2006. In financial year
2005-2006, 14 companies listed their shares
worth over Rs.25.46 billion (equivalent to
around US$ 425 million) on the Exchange.
The index appreciated by 34% as compared
to 41% increase in financial year 2004-2005
and the average daily turnover of shares was
324 million as compared to 347 million
during last financial year. The daily average
value of shares was Rs.35.49 billion as
compared to 27.35 billion in last year.
The economy has delivered yet another year
of solid economic growth of 6.6%. However,
the pace has slowed from the previous year
of 8.4%. The main driver of growth has
become the services sector. With over 50%
of the economy is now in the services sector.
The boom in services sector is being fuelled
by the transportation, telecommunication,
financial and retail sectors. However,
inflationary pressure in the economy, mainly
emanating from high international oil prices
and increased domestic demand of various
commodities, led to rising interest rates.
The stock market performance is attributable
to the impressive growth in the profitability of
the listed sectors in general and banking,
cement, oil & gas, fertilizer and automobiles
in particular. The Government polices on
privatization and liberalization also
contributed to the positive market
performance. In view of the growing future
demand, expected entry of private of sector
in the new ventures and aggressive
privatization policy of the government will
require huge additional investment. With
more large issues to come for listing for
raising financial resources from the capital
market, it is expected that size of the market
in terms of volume and market capitalization
will increase further, thus attracting both local
and foreign portfolio investment in the
country. Moreover, with the improved and
efficient trading systems at the Exchange
with sound risk management and stringent
regulatory framework, the prospects of the
KSE are full of promise.
HISTORY AND DEVELOPMENT
The KSE came into existence on
18 September 1947. It was later converted
and registered as a company limited by
guarantee on 10 March 1949. As many as
90 members were licensed at that time, only
half a dozen were active as brokers. Initially,
only five companies were listed with a paidup
capital of Rs. 37 million (US$ 0.62 million).
As of June 30, 2006, 658 companies were
listed with the market capitalization of around
US$ 46.5 billion having listed capital of
US$ 8.2 billion.
The KSE was declared as “The Best
Performing Market of the World” in the year
2002, by international magazine “Business
Week” and a US newspaper “USA Today” on
registering increase of 112% in the KSE 100
Index.
In 1991 the secondary market was opened to
foreign investors on an equal basis with local
participants. This measure, along with a
policy of privatization, has resulted in rapid
growth of the market since 1991. Privatization
has been adopted as a philosophy, and
activities that were previously reserved for the
public sector have now been opened to the
private sector.
In 2006 the KSE has achieved another
milestone as the KSE 100 Index had touched
at all time high of 12274 points on 17 April
2006 and closed at 9989 points on 30 June
2006. The market capitalization also crossed
US$ 50 billion and reached at US$ 57 billion
on 17 April 2006 and closed at US$ 46.52
billion on 30 June 2006.
The record-breaking performance of the KSE
during the last six years is attributed to the
positive and consistent policies of the
government especially on privatization and
liberalization and a number of measures
implemented by the Exchange. In view of the
growing future demand, expected entry of
private sector in the new ventures and
aggressive privatizing policy will require huge
additional investment. With more large
issues to come for listing for raising financial
resources from capital market, it is expected
that the size of the market in terms of volume
and market capitalization will increase further.
The KSE has taken a number of measures to
increase investor’s confidence by making the
Exchange more transparent and introduced
modern technology in order to convert the
market into a truly modern and efficient one.
In this regard UIN registration has been
implemented from 1 August 2006, internet
based trading has also started from
6 December 2004. Continuous Funding
System (CFS) was introduced and
implemented with effect from 22 August 2005
to improve liquidity in the capital market
replacing the Carry over Transactions (COT
or Badla) completely. In addition, corporate
governance is now the part of the KSE’s
listing regulation. Transparency has been
enhanced with the implication of quality
audits, quarterly financial reports and timely
dividend payouts.
FUTURE OUTLOOK
The KSE is determined to remain one of the
growing institutions not only within the
country but globally as well. The future
projects include:-
• Demutualization of the Exchange,
• Introduction of new derivative products in
line with international standards, such as
index futures, options, etc.,
• Futures contracts with options of cash
settlement,
• Promoting margin financing,
• Improve I.T. infrastructure including setting
up of BCP & DRS,
• Cross border listings,
• Investors’ education and enhancing their
awareness; and
• Reform process to be strengthened further.
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