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To discuss the Pakistan Stock Market we may refer to the data of Karachi Stock Exchange being the premier stock market of the country. Most of the companies listed on Lahore and Islamabad Stock Exchanges are also listed on Karachi Stock Exchange. The turnover of Karachi Stock Exchange is fairly contributed by these two fast growing regional Stock Exchanges whose members send the unexecuted orders at their exchange to the Karachi Stock Exchange Floor. This is an international phenomenon e.g. India has 22 Stock Exchanges but the Bombay Stock Exchange is regarded as the Indian Stock Exchange. Similar is the case of the New York Stock Exchange for USA and the Tokyo Stock Exchange for Japan.

The Karachi Stock Exchange came into existence in 1949. Initially only 5 companies were listed with a paid up capital of Rs 37 million. From this modest beginning the Karachi Stock Exchange today has become the key institution in the financial sector of Pakistan with 740 companies listed having a paid up capital of Rs 116.372 billion and market capitalization of Rs 339.480 billion which is equivalent to USD$ 11 billion. During its life of 45 years we have seen two wars, break up of one part of the country which is now Bangladesh, nationalization of banks and key industries, martial laws, Afghan war and precarious law and order conditions in Sindh particularly in Karachi. By the grace of God the market economic policies of the recent years. The free market economic policies of the recent government like d3eregulation, privatization and liberalization of foreign exchange controls have triggered the growth of Pakistan stock markets in the last four years. During this period we have also seen the qualitative improvements in the financial services available in our country. The following charts show the historical performance of the Pakistan Stock Market.

PERFORMANCE OF PAKISTAN STOCK MARKET PRE-1990


PERFORMANCE OF PAKISTAN STOCK MARKET POST � 1990

The stock exchange gained momentum during the 1960s when the number of listed companies went up from 81 to 291. this was due to encouragement given to industrialization by the then government in the form of tax holidays, subsides and export bonus incentives. This policy was aimed at converting an absolutely agrarian economy into a consolidated agro-industrial economy.

However, during early 70s, there was political turmoil in the country resulting in the dismemberment of the former East Pakistan into Bangladesh. Along with these government began a campaign of nationalization of companies and banks. This stunted the growth of the economy and the market. During 1980s, particularly in the second half we saw some policy changes like total exemption of dividend income in the hands of the individual shareholders, issue of Foreign Exchange Bearer Certificates to encourage remittances through regular banking channels and program to gradually permit the entry of the private sector in the financial system through Investment Banks, leasing companies etc. these measures restored the confidence of both entrepreneurs and the investing public to a great extent.

The year 1991 saw major changes in government policies. These included not only the continuation of the above policies but the opening of the market to foreign investors, privatization of public sector companies, deregularization of economy allowing commercial banks in the private sector and liberalization of foreign exchange controls. These policy measures are mainly responsible for the accelerated economic activities specially in the capital market. It is very heartening that the successive governments during the last four years not only continued these policies but pursued them very vigorously. These policies have now placed Pakistan in the category of new emerging markets of the worl with an outstanding foreign investment of US $ 1,5 billion in the companies listed on the Pakistan stock markets based on current market Euro Convertible Bonds and GDR markets. Dewan Saman Fibres Ltd. raised US $ 45 million in Euro Convertible Bonds market through issue of 7 year bonds with a coupon rate of 5% and conversion option at Rs. 195 per share. Similarly the international offering of PTC attracted an investment of US $ 890 milliom and substantial portion of subscription has been opted in GDRs by the international investors. This has been the largest issue of Pakistan and the second largest issue from the emerging markets after Mexican Telecom. Hubco and Chakwal Cement have also raised US $ 157 million and US $ 100 million respectively from the international market through the instrument of GDRs.

TABLE 6.1

Additionally a number of 100% equity financed companies like Lucky Cement, Dhan Fibres and Ibrahim Fibres raised altogether over US $ 130 million through pre IPO placement of their shares to international investors.

In tables (6.1 to 6.3), comparison is provided of the Karachi Stock market with other emerging markets particularly of the South Asian region which include India, Sri Lnka, Indonesia, Malaysia, and Thailand in respect of turnover, growth and return, figure 1 show the relative size of these emerging markets.

TABLE 6.2
TABLE 6.3

In the end, let us look at the present market conditions, the year 1994 has seen a 50% growth in its listed capital which has increased to Rs 104.137 billion from Rs. 69.476 billion in 1993. This large supply of securities has been one of the primary reasons behind the increased pressure on the prices of the listed shares. Political turmoil, social disorder, soaring inflation and rising global interest rates pushed Pakistani Equities sharply lower. Foreign investors avoided the market due to increasing tension between the Government and opposition, social disorder in Karachi and rising US interest rates. The Government�s ability to control the internal problems will determine the future direction of the market.