July 2011-June 2012: Mutual funds industry shows increase of 41 percent: SECP

Chairman Securities and Exchange Commission of Pakistan (SECP) Muhammad Ali said that the mutual funds industry has shown a healthy increase of 41 percent during July 2011-June 2012 against same period of previous fiscal, because net assets of private pension funds grew by 76 percent and Karachi Stock Exchange (KSE) emerged as one of the best performing markets in the world in 2012.
In his message to the new annual report-2012, Muhammad Ali said that Pakistan's capital market, non-bank financial, insurance and corporate sectors have immense potential, which has been proved by the fact that the market has shown immense resilience even in the face of pressure such as the depreciation of the rupee, very limited foreign investment, uncertain law and order situation, etc. The mutual funds industry has shown a healthy increase of 41 percent against the last year, while the net assets of private pension funds grew by 76 percent, again showing the strength and potential of our market. The insurance penetration to GDP ratio in Pakistan has gone up from 0.7 percent to 0.9 percent over the last year but this is still low as compared to other countries in the region. The KSE 100 index grew by just over 10 percent during the year, but picked up in the second half of 2012 to post an increase of 48 percent in the calendar year 2012, becoming one of the best performing markets in the world. The trading volume at the PMEX was over Rs 900 billion during the year with 3.7 million contracts being traded. With regard to the corporate sector, almost 4,000 companies were registered during the year and, with the introduction of fast track registration services, companies can now be registered within four hours.
SECP Chairman said that despite this performance, the statistics for financial inclusion in Pakistan are woefully inadequate with only 14 percent of our population having access to formal financial services-the lowest in the region. The number of investors in Pakistan is one-tenth of the level in Bangladesh (with a smaller population) and one-twentieth of the level in Turkey (with a population of about 75 million). The financial landscape in Pakistan-in terms of distribution-is severely inadequate. We have fewer than 200,000 investors, which is around 0.1 percent of our total population, a vast majority of whom are based in the three large cities, while asset management companies have a presence in only 27 cities and stockbrokers have a presence in only 18 cities. With over 60 percent of our population living in the rural areas, our capital market has almost no outreach there and even in the urban centres it is limited to the principal cities like Karachi, Lahore and Islamabad. Looking at the corporate sector, we have 3 million businesses in Pakistan, however, of these only about 63,000 businesses are registered as corporate entities.
Muhammad Ali said that at the macro level, our markets offer various investment avenues and products for the general public like bank deposits, currencies, real estate, national savings, government securities, corporate bonds, gold and equities. Despite offering return lower than the inflation, bank deposits, government securities and national schemes remain a preferred choice for savers due to their wider outreach and public confidence in the instruments at large. At the individual level, the real estate is a popular investment avenue offering good returns. However, fraud is fairly commonplace due to a lack of transparency in the real estate transactions. The fact is that there is no regulatory authority to supervise the sector. 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 lack of infrastructure necessary for bond market. Gold as a mode of investment has given high returns in recent years, but internationally its price has stabilised. Finally, we have equities as a mode of investment; as an asset class, despite all the turbulence, equities have exhibited an average annual return of 30 percent over the last decade.
In light of the above, the question remains: Why does the general public stay away from asset classes, which offer better returns? A similar question arises when we look at our insurance and corporate sector, where penetration remains very low, Muhammad Ali added.