The Securities and Exchange Commission of Pakistan (SECP) will address the weak link between the capital market and the real economy as according to the SECP, a very small portion of public savings reaches the real economy. The Capital Market Development Plan-2016 of the SECP revealed that a key issue is the weak link between capital market and the real economy.
A very small portion of public savings reaches the real economy through the capital market. As already mentioned, there are only a few hundred listed companies and perhaps an aggregate of a couple of hundred thousand of investors in such companies. The bulk of the market capitalization of the capital market is represented by either state-owned enterprises or privatised companies.
Market capitalization as a percentage of GDP was only 24.6 percent in Pakistan in the year 2015 as compared to 261.6 percent in Singapore, 135.8 percent in Malaysia, 113.4 percent in Thailand, 85.97 percent in India and 98.36 percent in China. A sector wise break-up of the country's GDP reveals that amongst the services, agricultural and industrial sectors - livestock, manufacturing, wholesale and retail trade, transport storage and communication, and crops are the major contributors towards the GDP.
On the other hand, a sector wise break-up of the market capitalization of listed companies depicts that commercial banks, oil and gas exploration companies, food and personal care products and cement sectors constitute the major part of the market capitalization. Comparison of the two indicators emphasises the need to attract major sectors of GDP into the listing net to make the capital market a true representative and contributor of the country's economy. The number of retail investors who invest through the market is much smaller than the number of those participating in IPOs for a quick turn and those who hope to make a profit through trading (leveraged or otherwise). Thus a very small amount of true savings from the retail level gets routed to financing business activity through the capital market. The financial sector is mainly dominated by the banks which are still the popular option for majority investors because of their ease of outreach and acceptability in the general public.
If one looks at the non-bank financial sector, total number of individual accounts reported by all mutual funds and voluntary pension schemes were 250,499 as of June 30, 2015, out of which individual investors in mutual funds and voluntary pension schemes were 115,826. Insurance premiums as percentage of GDP stood at 0.8 percent which is very low; while investment banking, housing finance and leasing sectors are struggling for survival, the SECP added.
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