PAKISTAN STOCK MARKET (KSE100)

The Pakistan Stock Market (KSE100) increased to 30103.23 Index points in October from
29726.39 Index points in September of 2014. Stock Market in Pakistan averaged 6758.20
Index points from 1990 until 2014, reaching an all time high of 30474.75 Index points in July
of 2014 and a record low of 538.89 Index points in June of 1990.


Pakistan Latest Reference Previous Highest Lowest Frequency

Stock Market 30103.23 Oct 2014 29726.39 30474.75 538.89 Daily
30103.23


The above picture shows the trend of Pakistan Stock Market from January 2012 to September
2014
The Karachi Stock Exchange 100 Index is a major stock market index which tracks the
performance of largest companies by market capitalization from each sector of Pakistani
economy listed on The Karachi Stock Exchange. Since October 15th, 2012 it is a free-float
index. The KSE100 has a base value of 1000 as of November, 1991.


PAKISTAN ECONOMIC FORECAST
Markets Last Q4 Q1 Q2 2015 2020 2030

Currency 102.75 104 103 101 99.93 90.82 72.77 [+]
Government Bond 10Y 13.35 13.46 13.41 13.18 13.37 13.32 13.29 [+]
Stock Market 30103.23 29551 29954 30070 30056 37685 56527 [+]
Pakistan is currently facing many problems like security, terrorism and energy issues and its
economy is suffering because of hostile neighbours and international politics but amidst all
these problems investment houses are very optimist about next years performance.

Arif Habib Limited, a well-known name and one of the pioneers in investment industry has
issued its report reflecting its views on Pakistans politics, economy and stock market.

According to their prediction the Karachi Stock Exchange index will reach near 30,000
Points by the end of next year.

The current index level of above 2000 points is a stark example of how things can turn
around unexpectedly against all odds. Last year Karachi stock market index was looming at
16000 points and no one in its right mind could predict that by the start of New Year the
index could reach 19000 points and ultimately break all records of 2000 index points.

Following increasingly disturbing last five years, Pakistans politics entered a thrillingly
action packed arena with expected changes in its political party setup as new political
alliances stretches their muscles for power. With historic completion of the full five year term
of the Democratic government, Pakistan politics enters 2013 carrying with it a lot of excess
baggage in terms of macro and socio-economic issues as the latest economic fallout (last five
years) speaks for itself. If popularity polls were something credible to go by, to represent
peoples will, two Political parties one relatively fresh, and the other already a veteran could
be PTI and PML-N that have emerged as the only delivering parties in the last 5 years while
the rest being at losing end. Finally PML-N emerged as a winner and PTI turned out to be the
second best political party of Pakistan. Apart from whoever party won the elections
nevertheless it was the victory of democracy which has started given its fruits right at the start
of what many people considering as the beginning of the new era. Day after the successful
completion of elections polls KSE index soared to 20000 index points breaking all previous
records of Pakistans history.

The single-digit inflation and discount rate came as a fresh air to the corporate sector while
deteriorating fiscal account remains one big issue. Not only these two indicators, but also the
slowdown in government borrowing made 1HFY13 worth an applause.

However, 2HFY13 remains critical as government borrowing takes a U-turn, which is
expected to cap investor excitements. We expect CPI to remain below 9%, contained well
against full-year target of 9.5%. Further, with the realization of flows from the US under the
CSF umbrella, we estimate CAD to be around 1% of GDP in FY13 and FY14, which would
be quite manageable keeping other smaller flows in perspective. What actually is threatening
for the overall BOP, and thus for PKR, is the debt servicing portion, with the repayment due
to IMF left around USD 1.7bn in 2HFY13.

Inflows worth USD 1.5bn and outflows worth USD 3bn should plunge Forex reserves at
around USD 12.5bn end of FY13. Already frail, PKR is expected to further weaken against
USD, we incorporate an 8.5% total hit during FY13.

However as democracy is getting stabilized in country and load shedding is expected to stop
at the end of this year investors are bound to invest heavily in our market. Talks with
terrorists are also in process and there is a very strong chance and hope that the political
parties will eventually settle the disputes with dialogues and country will come out from the
state of tribal war.

If this happens as expected to be, nothing can stop KSE 100 index to reach 30000 points at
the end of 2014.


STOCK EXCHANGE AND ECONOMIC TREND IN PAKISTAN
PAKISTAN Stock Exchange showed 30000 points in July 2014 against the lowest of 538
points in 1990. The market showed some slow, but positive movement throughout the trading
session. Despite Pakistan is facing lots of problems both at internal and external levels, it is
on the way of growth and development. According to World Bank Report, Pakistan will be
the second largest economy in the South Asia. Economic performance of Pakistan is
improving quantitatively and qualitatively as growth is broad based and touched all sectors of
the economy. The stock markets are the best indicators to estimate future economic activity
and stock market health is also a measure of economic strength of a country .In order to boost
economic development of a country the development of stock market is vital. The Islamic
Republic of Pakistan is a country situated at an intersection of three major counties of Asia. It
is a developing, lower middle-income country with GDP per capita $2500, and have a
population of 187 million.

However, with the help of standby agreement with IMF in 2008, the countrys foreign
reserves increased and current account stabilizes. According to a report released in 2011 by
the World Bank the market capitalization of listed companies in Pakistan increased to
$38168586546 in 2010. A major source of income for a developing country is Foreign Direct
Investment (FDI). There is a positive relationship between FDI and economic development.
When there is growth in economy, the stock exchange will also rise. Thus, increase in FDIs
will increase the stock exchange activities. The inflow of FDIs in 2013-14 was $750 million
into different sectors. The improvement in FDIs is encouraging but the quantum is very low.
Domestic savings can also increase the capital inflow. With the growth of economy, the
interest rate will decrease and savings will be increased, as there is negative correlation
between savings and interest rate. The domestic savings are recorded as 7.5% of GDP in
2013-14 while it was 8.9 % of GDP in 2012-13.

In Pakistan, the per capita income is low. Their propensity to consume is very high. As the
flow of saving is inadequate to meet the capital needs, the government of Pakistan adopts
certain measures to control the consumption and increase the volume of savings. Taxation
and government borrowing, both methods are very sensitive and delicate. Taxes affect
citizens, economy of the country, businesses, and governance mechanisms, etc. Not only
revenue mobilisation, an effective system of taxation helps in formalising the economy,
encourages economic growth, shapes political cohesion between tiers of the government, and
results in increase in social sector service delivery. The whole economy is affected by the
activities in the Stock Exchange. The downward graph causes recession while the upward one
leads to the growth in the economy. There will be increase in the GDP and GNP of the
country. The low rate of interest will boost the investment level. The difference between the
savings and investment will be covered by the foreign investment. The dividends will be
increased. The effective demand will increase in the economy. The productivity will be on
rise. New jobs will be created in the job market.

Due to the positive and upward trend in the stock exchange, the investors will become
confident and the morale will be high. The risk will be low in investing which encourage new
investors to enter into the market. The investors will maximize their wealth in this scenario.
Exports during the first ten months (July-April) of the current fiscal year reached to US$
20,997 million rising from US$ 20,143 million in the same period last year thereby
witnessing a growth of 4.24 percent. Imports during the first ten months (July-April), showed
a growth of 1.2 percent compared with the same period of last year and reached to $37,105
million against $36,665 million same period last year. Trade account balance recorded a
marginally higher deficit during Jul-April, FY14, compared to same period last year. Trade
account deficit increased by 2.8 percent in Jul-April, FY14. Pakistan is framing its import and
export policy in such a way that the supply of essential commodities does not fall and they
are provided at the reasonable price within the country.

The inflationary pressure generated by deficit financing can also be reduced by effective
control on the supply and prices of the essential commodities. The basic commodities are
provided to the consumers at fixed prices through cooperative stores. The government is
controlling the rise in prices by proper allocation of scarce resources. The objective of the
development, the priority of the projects and the combination of the factors are being
watched, as the resources are not wasting on unproductive projects. The government took
instant measures to improve the fiscal situation through expenditure management strategy
and raising tax and non-tax revenues during fiscal year 2013-14. The Government is
increasing the rate of taxes on luxury goods, reducing the essential expenditures and
introducing saving schemes. The SBP should control the circulation of money and interest
rate to discourage the non-essential private investment and encourage the expansion of
essential investment.

PAKISTAN BOND MARKET
In Pakistan, the development of money market and bond market was initiated in late 1990s
after the liberalization reforms; however, Pakistan's bond market has developed at a slow
pace as compared to other countries. Like other emerging markets, most of the debt financing
is done through bank borrowings. According to State Bank of Pakistan (SBP) and Securities
and Exchange Commission of Pakistan (SECP) the domestic bonds outstanding were 30
percent of the GDP, equivalent to PKR 5.8 trillion as of June 2012. This consists mainly of
government bonds, as the corporate market is yet to develop. Government bond market
gained momentum after the introduction of Pakistan Investment Bonds (PlBs) in 2000, which
helped to streamline the auction of Government Securities and to develop secondary market
for the Government Paper. SBP introduced selective Primary Dealer System (PD) in 2000. In
2001 KlBOR/KIBlD rates were introduced to provide inter-bank call money curve.
Outstanding T-bills are roughly PKR 2.4 trillion as of June 2012 out of which banks hold 75
percent worth of short term paper. Outstanding PIB amount is PKR 974 billion, out of which
52 percent of holding are with banks.

Latest bond issues
Issue ISIN Coupon Volume End of placement Maturity date
Pakistan, 2019 - International bonds XS1056560763 7.25% USD1 000 000 000 04/08/2014 04/15/2019
Pakistan, 2024 - International bonds XS1056560920 8.25% USD1 000 000 000 04/08/2014 04/15/2024
Pakistan, 2017 - International bonds USY8793YAM40 6.875% USD750 000 000 06/01/2007 06/01/2017
Pakistan, 2036 - International bonds USY8793YAL66 7.875% USD300 000 000 03/30/2006 03/31/2036
Pakistan, 2016 - International bonds USY8793YAK83 7.125% USD500 000 000 03/30/2006 03/31/2016

KARACHI - The Government raised a net amount of Rs64.31 billion, as against the target of
Rs60 billion, through the auctions of Pakistan Investment Bonds (PIBs during 2009-10
(FY10) mainly due to reopening of the previous issues throughout the year, according to SBP
Annual Report on the working of the Bank (Performance Review) for the year 2009-10
released recently.
The report stated that investors seemed most interested in 10-year PIBs, as about 60 per cent
of the money was raised through this tenor. As a result of these borrowings, the outstanding
balance of the PIBs increased to Rs 505.29 billion at the end of FY10 compared to Rs 440.99
billion at the end of FY09.
MARKET TREASURY BILLS
A net amount of Rs467 billion (face value) was generated by the Government by means of
Market Treasury Bills (MTBs) in 2009-10 compared to net Rs304 billion in the previous
year.
A total of 25 auctions were held by SBP during the year in which the primary dealers offered
an accumulative amount of Rs3.2 trillion against the target amount of Rs1.36 trillion.
In an effort to broaden the investor base, SBP allowed non-competitive bids in June 2009 - a
process that allows individuals, small investors and non-banks to invest directly in MTBs. A
total amount of Rs20 billion (face value) was raised through non-competitive bids during
FY10. Mutual funds remained the most active non-bank investors in the MTBs capturing 63
per cent share in total amount raised via noncompetitive bids. SBP is also working in
collaboration with National Institutional Facilitation Technologies (Pvt) Ltd, to develop a
web portal where retail investors will be able to place noncompetitive bids directly in each
auction, Report said.
GOVERNMENT IJARA SUKUK
The issuance of Government of Pakistan Ijara Sukuk which had been a longstanding need of
Islamic banking industry has also served as a new source of funds for the Government.
The Report revealed that during FY10 government conducted only one Sukuk auction of 3-
year tenor amounting to Rs15.32.
A total of four tranches of GoP Ijara Sukuk had been issued since its introduction in 2008
amounting to Rs42.24 billion.
E-BOND: ELECTRONIC
BOND TRADING PLATFORM
As a major step in the development of fixed income markets in Pakistan, an electronic fixed
income trading platform provided by Bloomberg called EBND was launched on January 11,
2010. The platform is currently being used for trading of government securities only;
however, it has the capacity to support trading of corporate debt instruments as well.
EBND which is already in use in 18 countries has the following key features:
- A central display provides the best live quotes by price makers of all outstanding issues.
- Dissemination of real time information to investors on transactions in fixed income market.
- Price takers can approach multiple price makers for firm quotes.
- Choice for price makers to enter and trade on firm, anonymous orders.
- Facilitate for users to customize their counterparty credit database.
- Option to manually input any bilateral deal which is not concluded on Bloomberg through a
Voice Trade Capture feature.
- Although this is a front-end system, straight through processing interface is possible with
local settlement systems and banks internal systems as it is based on FIX protocol.
The report predicted that the introduction of this platform is expected to provide not only a
boost to fixed income market; it also has a lot for all market participants.
The availability of real-time information about yields and turnover will help the issuer in
determining demand for its paper and make better funding decisions. Moreover, the platform
is likely to attract more investors to the market as the price discovery process becomes much
easier resulting into enhanced liquidity and lower liquidity premium.
This will also result in further development of liquid yield curves for various market
segments. With the availability of a widened investor base, banks would be able to shift Govt
debt from their books freeing up funds for private sector credit, it said.
The fact that Bloomberg is offering its services in all major financial markets in the world is
another advantage of the system as it will provide international investors with an additional
window on Pakistans economy, it added.