Government Needs To Protect Our Financial Assets And....Here Is Why. #MirMak

Government Needs To Protect Our Financial Assets And....Here Is Why. #MirMak

Markets have gone up points upon points in the past few weeks specially after the IK dharna cancellation. The funniest thing happens to any investor when the family and friends ask after watching the news on the television that the market has gone up, the say..."Oh ho, aaj kal tau baray paisay ban rahay hain market mein"... And you are left speechless and smiling in your heart. How can you explain to them that the Index is going up but not all stocks are up.

On a very serious note, our KSE 100n Index is the most unbalanced or the most lopsided index i have seen in my life. It is not a very well balanced Index. Certain sectors within the index are so heavily weighted that when they go up, the entire index goes up. And to top it all off, the companies within those sectors are so illiquid that a few hundred thousand dollars worth of buying within those companies early in the morning will put those stocks on upper caps thus moving the index up worth hundreds of millions of dollars in market capitalization just with a few hundred thousand dollars worth of buying.

And now lets look at what this phenomenon is. After studying in depth the indices of Tokyo, London, New York, Shanghai, KSE 100, just to compare a few, i have come to some astonishing facts that need to be looked at and the authorities need to fix the problem as we move forward. The index needs to be readjusted before the emerging markets are traded in Pakistan. The Pakistani Index comprises almost 40% of the entire market with just two sectors, OIL and BANKING. Nowhere in the world does this happen except in Pakistan that just two sectors weigh so heavily within an Index. Oil stocks go up, or the bank stocks go up, the entire index goes up and the rest of the stocks remain where they were a few days ago.

Here is a glance of what banks and oil companies weigh in other indices.

NIKKIE
Banks 1%
Oil .44%

Dow Jones
Banks 2.93%
Oil 7.20%

FTSE
Banks 13.3%
Oil 15.27%

SHSZ 300
Banks 18.38%
Oil 1.38%

KSE 100
Banks 23.38%
Oil Exploration 11.41%
Oil Marketing 5.09%

In a country where majority of the investors have no in depth knowledge and are emotional investors who just by looking at the the Index decide to buy or sell, if we do not fix this problem and readjust our index, i foresee a time when investors will be absolutely mislead by the index movement and will either get sucked into buying based euphoria or get forced to sell out of fear. This WILL happen because the higher the index goes the more numerical fluctuation will be visible to the novice investors. A 7999 point swing in a day at 80,000 is hypothetically and in reality possible, with the circuit breakers at 5% up or down for the entire market. Just one major bank declaring bankruptcy in Pakistan or just one oil company losing a few exploration sites will affect the entire market in such a negative manner that we will end up losing billions of dollars of market capitalization in just one single day. And the Government Of Pakistan which owns tens of billions of dollars in PSX assets through its listed companies will be the biggest loser if that happens. And it will happen if the problem is not corrected.

So if not for the sake of a common man in Pakistan the GOP should look out for its own interest and correct this problem immediately. I urge them to do so because soon enough our markets will have a value, at least 40% of our GDP and 40% of the GDP can not be put at risk because two cartels want to reign supreme in the index, we can not afford to risk $100 billion dollars in total and $40 billion dollars of the GOP assets.