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Challenges to capital market expansion highlighted

Challenges to capital market expansion highlighted

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has observed that the capital market is still not a popular mode of investment among the general public, due to which the market is not performing at the optimal level.

The SECP has said that the number of retail investors who invest through the market is much smaller than the number of those participating in IPOs — for a quick return.

“A very small amount of true savings from the retail level gets routed to financing business activity through the capital market,” the SECP said in its Capital Market Development Plan 2016-18.

The challenges highlighted in the plan included low savings rate, low number of investors, lack of viable investment alternatives and limited outreach of financial/capital market institutions and products.

The SECP has noted that the culture of savings and investment has not been promoted nationwide in the past.

The past five years’ average savings rate as a percentage of GDP was relatively low at around 13.92 per cent compared to 31.9pc for India, 29.7pc for Bangladesh and 24.5pc for Sri Lanka.

“Despite being one of the best performing markets of the world for many years, the Pakistani capital market as compared to other markets has a very small investor base,” the plan said, adding “the capital market will remain underdeveloped as long as the savings rate remains low.”

The SECP has said that another major challenge is weaknesses in the existing market structure and alignment of this structure with international standards.

The other key challenge for growth of the capital market was lack of diversified ‘product’.

The SECP has said that the cash market in Pakistan is relatively mature, but the derivatives segment has not performed to its fullest.

“The range of derivative products offered at the stock exchange is relatively limited,” the plan said.

It has been highlighted that diversified derivative instruments need to be launched to enable investors to better manage their portfolios and risks.

Regarding the debt market, the corporate bonds can be a viable option for both savers and borrowers, however, this segment has remained underdeveloped primarily due to the crowding out effect and a lack of infrastructure necessary for a bond market.

“Even on the equity side, lack of quality listings is a major issue, as explained above,” the plan said.

The SECP has said that a vibrant and stable financial sector and capital market play a critical role in the economic growth of a country. This, however, is only possible in the wake of a wide range of saving and investment products being available to meet the risk appetite of investors and the funding needs of borrowers.

Unfortunately, this is not the case in Pakistan where the banking and non-banking financial sectors have not performed up-to the mark on this account.

Courtesy : Dawn News



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