The Securities and Exchange Commission of Pakistan (SECP) has observed that 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. According to the SECP's 'Capital Market Development Plan (2016-18) issued here on Saturday, 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," it added. 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 in Pakistan, 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 in Pakistan was relatively low at around 13.92 percent compared to 31.9 percent for India, 29.7 percent for Bangladesh and 24.5 percent 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 the growth of Capital markets in country 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," it said.
The SECP has said that a vibrant and stable financial sector and capital market plays 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, the SECP added.
Comments
Comments are closed.