OverviewEmerging Capital Markets

11th ASEA Conference2007

11th ASEA Conference2007

Global LandscapeGlobal Landscape

• Globalization is happening, Faster than ever……….. like any other industry

(This has become, more or less, a Natural Phenomenon….)

• This can be termed as “Expansion from outer shell, and consolidation from within the shell.

• US & Euro Zone are key players, 80% of world’s capital flows in 2005 were among the US, Britain & Euro Zone.

RegionalizationRegionalization

• Regionalization is shaping up, to some extent…

(APAC, SAGE, ME, Africa)

• Asian markets have been fragmented, and remained isolated from one another. Therefore these have been largely outside the global financial loop.

• Consolidation will start happening, after regional cross-trade and Demutualization activities. Signs have started showing up, that people and exchanges have started talking to each other, in order to attract cross-flow of capital.

2007 Outlook of PAKISTANI Exchanges2007 Outlook of PAKISTANI Exchanges

2006 KSE LSE ISE

Established 1947 1970 1989

Listed Companies 658 519 240

Listed Capital (M US$) 10,388 9,200 6,266

Market Cap (M US$) 66,136 60,666 35,000

Avg Daily Turnover (M shares)

262 60 35

Avg Daily Trade Value (M US$)

409 102 63

Avg Daily Trades 115,000 35,000 2,500

Index 13,772 (KSE-100)

4,805(LSE-25)

2,634(ISE-10)

Major MilestonesMajor Milestones

1987– First Phase of Reforms started (like Corporate Law Authority (CLA) imposed

condition that companies would be listed at both LSE and KSE simultaneously. However this condition was removed in July 1991.

1993– Central Depository Company of Pakistan Limited (CDC) was incorporated to

manage and operate the Central Depository System (CDS).

1994– Major Automation program started.– Pakistan Credit Rating Agency (PACRA), the first credit rating

agency was established.

1995– Introduction of T+3 settlement system.– Members’ Contribution Fund was established

1996– LSE was the first Exchange in Pakistan to introduce automated

trading.

1997– Second Major Capital Market Development & Reforms Program

started, funded by Asian Development Bank with US$255 million loan.

– The process of restructuring of CLA was initiated.– Investors Protection Fund was established.

1998 – First restructuring of Exchange Board of Directors with induction

of 5 outside Directors and appointment of independent Managing Director.

1999– The Securities and Exchange Commission of Pakistan (SECP)

succeeded the CLA.

Major MilestonesMajor Milestones

2001– LSE launch Internet Trading System.– The National Clearing Company of Pakistan Limited (NCCPL) was

incorporated to replace the separate and individual Clearing Houses operated by each of the three Pakistani Stock Exchanges.

2002– KSE was declared as the Best Performing Stock Market of the

World for the year 2002 by international magazine “Business Week”.

– Code of Corporate Governance was incorporated in the Listing Regulations.

– LSE implemented automated Trade Risk Filter (TRF) to monitor the members’ trading exposure on real time basis.

– Banks and financial institutions were allowed to become Associate Member of LSE Clearing House.

– Trading in Futures Contracts was introduced.– LSE launched new LSE-25 Index.

Major MilestonesMajor Milestones

2003– Exchange Board was restructured. The Board of Directors

constituted 10 members, of whom 5 are elected members of the Exchange, 4 are non-members nominated by SECP, an a Managing Director, who is also non-Member.

– Surveillance Mechanism introduced and established.

2004– The System Audit of members was introduced.– Clearing and Settlement Operations of exchanges were switched

over to the National Clearing Company of Pakistan Limited.– Remote Trading Floor established (in other cities)

2005– LSE launched a series of investor education and awareness

programs.– Investigation & Enforcement Unit was setup to maintain a check

on the market abuses.

Major MilestonesMajor Milestones

2006– Unified Trading Platform for LSE & ISE initiated.

– The Finance Act 2006 included provisions for corporatization and demutualization of Exchanges in Pakistan.

2007– Common Trading Platform launched, through Unified Trading

System (UTS).

Major MilestonesMajor Milestones

Team Players in Capital MarketTeam Players in Capital Market

Securities & Exchange Commission (SEC) Central Depository Company (CDC) Clearing & Settlement Company (CSC) Credit Rating Agency (CRA) Commodity Exchange Company (CEC)

LSE Volume Pattern After AutomationLSE Volume Pattern After Automation

Daily Volume grew from 1M to 14M in 6 months.

Symbols traded increased to over 100, from 15

KSE-100 Index KSE-100 Index

LSE-25 IndexLSE-25 Index

Corporate stock vs. Corporate DebtCorporate stock vs. Corporate Debt

• Corporate Stock is NOT the financing method most relied upon.

• Corporate Debt is the dominant financing method

Bonds and

Notes73.60%

Equities26.40%

AVERAGE DAILY TURNOVER IN REGIONAL MARKETS

Exchange Average Daily Turnover

Million Shares

Australia 870

Karachi 674

Singapore 365

Korea 394

Mumbai 285

Best Performing Market in the World

KSE was the world’s best performing market of 2004. From 1999 to 2004 index increased by 341%......

What do Investor look for ?

The main factors that investors consider when evaluating the attractiveness of an emerging market;

Economic Development

Sustainability of economic achievement and growth

Resilience to adverse internal or external events

Market Development and Operational efficiency

Clear market regulations and enforcement of laws

Efficient Settlement of trades

Availability of market data and disclosure of information in general

Accessibility to Foreign Investors

Foreign investment restrictions

Freedom of capital flows

REFORMS AGENDA

• Economic Reforms

• Corporate Reforms

• Capital Market Reforms & Initiatives

• Governance

• Technology Reforms

• Settlement & Clearing System

• Seamless and Fully Automated Systems for Efficiency & Transparency

• Risk Management

REFORMS AGENDA

INVESTING IN STOCK MARKET

• Foreign investors are at par with local investors, 100% shareholding is allowed

• Free repatriation of Dividend and Principal

• There is no capital gain tax on listed securities

INVESTING IN STOCK MARKET

• Dividend is taxed as a separate block of income at 10%

• Corporate tax rate is 35% for listed companies

• Easy fund-raising through IPO/ PO

How African Market should move ?

There could be 100+ factors for considerations, but key priorities should be;

– Adopting Closet Possible Business Model – Typically SAGE model will FIT because of similar Socio-

economic demography, Education, Per Capita, GDP, Banking Systems etc.

– Bringing Innovations (Localization)– Crafting Simple and Attractive Business Rules– Leveraging Technology

• To achieve Efficiency, Transparency and Seamless Processing (it should be Simple, Adaptable, and Cost-Effective)

– Governance (Regulations)

Contacts

Thank You

InfoTech (Private) Limited12-N Gulberg-II, Lahore-54660 PAKISTAN+92 42 111-427-427, www.infotech.com.pk

Naseer A. Akhtar, Mobile: +92 300 841 5333, naseer@infotech.com.pkSuresh Agarwal, Mobile: +65 96661106, agarwal@infotech.com.pk