Pakistan stock exchange chief says market bailout fund has ‘successful track record’

Workers clean a glass facade of the Pakistan Stock Exchange (PSX) building in Islamabad, Pakistan, on December 3, 2018. (REUTERS)

• Government approves Rs20 billion fund to boost stock market after big losses over the past two years
• Fund expected to operate in a similar manner as one formed after the 2008 financial crisis

KARACHI: The chairman of Pakistan’s stock exchange said on Thursday a Rs20 billion emergency fund approved by the government to stabilize the bourse would operate on the same lines as a 2008 fund with a “successful track record.”
The finance ministry said on Thursday the Economic Coordination Committee (ECC) of the Cabinet, a top decision-making body headed by de facto finance minister Abdul Hafeez Shaikh, had given the green light for the fund to help boost the stock market after big losses over the past two years
The Pakistani stock market’s benchmark 100-Share Index has lost almost a third of its value since hitting an all-time high of 53,127 points in May 2017. Media has reported that Shaikh approved the emergency fund on May 17 after a meeting with a Pakistan Stock Exchange delegation in Karachi.
The finance ministry has not explained how the fund will work but officials with knowledge of the matter said it would be similar to the one that helped stabilize the market after the 2008 financial crisis and would be put together with contributions from banks and insurance firms to buy stocks through a state-owned asset management company.
“In fact no new fund has been created as this fund already existed,” Sulaiman S. Mehdi, Chairman of the Pakistan Stock Exchange Limited (PSX), told Arab News. “The previously launched fund had a very successful track record. This fund will operate in the same way. Where it finds opportunities and valuation attractive, it will step in and buy with a long term view.”
“In order to stabilize the stock market of the country, the ECC approved the proposal of Finance Division authorizing Government of Pakistan to issue sovereign guarantee amounting to Rs20 billion for investment in National Investment Trust (NIT)-State Enterprise Fund,” the finance ministry said.
With 49 percent returns in 2012, the Pakistan Stock Exchange was one of the five best performing markets in the world. In 2013, the 100 stock index rose 38 percent in US dollar terms, making it the 10th best performing stock market in the world.
In the last two years, however, the market has been hammered because of a weakening economy that has seen growth slump amid a blow-out of the fiscal and current account deficits, leading to a provisional agreement with the International Monetary Fund for a $6 billion bailout last month.
“Following months of bloodbath at the bourse, the government and the Securities and Exchange Commission of Pakistan SECP granted approval to the National Investment Trust Limited [NIT] to launch a State Enterprise Fund (SEF) on 13th January 2009 to support the index and invest in select government-owned stocks,” Samiullah Tariq, head of research at Arif Habib Limited, said, explaining the last bailout. 
A total of Rs15.25 billion was allotted to the open-ended fund, Tariq said, formed under a trust deed between NIT as the managing company and the Central Depository Company of Pakistan Limited (CDC) as a trustee. Investment was allocated to eight stocks.
“In percentage terms, 52 percent allocation was made in exploration and production companies, 19 percent in oil and gas marketing companies, 18 percent in banks, seven percent in telecommunication and four percent in power. This translated into robust performance in the aforementioned stocks,” a research report by Arif Habib Limited said. 
The stock market’s recent slide also follows this month’s agreement in principle with the International Monetary Fund for a $6 billion loan, after which the rupee currency has dropped around five percent against the dollar.
The IMF accord, which must still be approved by the Fund’s board, foresees a “market-determined” rate for the rupee. At present, the currency — which many analysts consider overvalued — is managed by the central bank in a de facto controlled float.
The sliding rupee has caused alarm in Pakistan, which is already facing inflation likely to average over 7 percent for the year and surging costs for fuel and power, which are both heavily influenced by the dollar exchange rate.