Short term-ism among brokers has stunted growth of this industry: Director, Abbasi Securities

Ali Abbasi is a Director at Abbasi Securities, a Karachi-based stock brokerage firm. He is also the founding Managing Partner at ImPakt Capital. Ali has over 18 years of experience in private equity, venture capital, distress debt, and turnaround situations. With his expertise he has transformed Abbasi Securities from a stock brokerage firm to a complete wealth management firm which offers stock brokerage, corporate bonds, commodities and mutual funds distribution. BR Research met with Mr Abbasi to discuss the future of brokerage and the way forward to raise investor participation in domestic capital markets. The following transcript is comprised of excerpts from this conversation.
"To me what doesn't make sense is that we've got a market which on average gives about 25 percent return, every year. Yet the number of investors has remained more or less unchanged for the past many years", Ali Abbasi kicked off the conversation with a stark comparison between the stellar historical performance of the local bourses and the dismal growth in the number of investors, over the same period.
He presented the example of a hypothetical investor that has invested a small sum of money in the shares of a bluechip company. "Let's say an investor purchased 1,000 shares of Pakistan State Oil in 1982. At that time, he would have paid about Rs 12 per share. In 2009, the same shareholding would have swelled to 15,000 shares at Rs 350 per share. The annualised return based on capital appreciation only is a stellar tally; not to mention the dividends that the shares paid out through this period."
Mr Abbasi highlighted that there are few investment avenues in the world that have provided comparable returns to investors over the long term, anywhere in the world. He asserted; "Even if we take out five percent for currency depreciation against the US Dollar, it is still a phenomenal return which is unparalleled in most markets across the globe; let alone in Pakistan."
He added that from the perspective of an average individual who is able to save about 15 percent of monthly earnings, the smart way to invest is to go long-term and to follow a disciplined regimen of investing regularly. Although the stock brokerage business generally relies on commissions earned from trades executed by clients; Mr Abbasi stated that "our client base is primarily made up of long-term investors. We are not geared towards daily punters and we do not aspire to have such individuals as our clients."
In his view, one of the reasons behind the stellar returns provided by domestic capital markets, is the relatively low number of active participants. He contended that "a market worth tens of billions of dollars is being priced by a few thousand people. Most of these people focus on a handful of companies while most others are not actively traded. As a result, price discovery is not as efficient as it could be if the number of active market participants were to rise significantly."
Ali Abbasi has spent about a decade working in the financial sector in London. Given his experience and exposure, he is convinced that technological prowess has made it quite easy for even small brokerage houses to provide services to thousands of clients; via SMS, email and online portals. "Today there are just about 243,000 active investors in the stock market in Pakistan", Ali Abbasi highlighted, adding that "there is no reason that a single brokerage house cannot have this number of clients."
Driving home the point about the low level of market participation in Pakistan, he informed "The entire population of Sri Lanka is about as much as the population of Karachi alone. Yet the number of registered investors on that country's stock exchange is about 550,000 account holders." He contended that this difference is all the more surprising given the fact that Pakistan has many more industries than Sri Lanka.
He contested the view that Pakistan has a dismal savings rate. "A lot of savings go into trading activities such as buying gold, cars, foreign currency and real estate", he stated. He highlighted that anomalies in taxation encourage people to stay out of those sectors that are within the tax net.
While he stressed the need to raise awareness among potential investors in order to increase the number of market participants, Mr Abbasi insisted that investors should not be lured simply by quoting the current highs that the market has established. He contended that when brokers do so, investors are left with a bad taste when equities slide. Instead, he argued that brokers have to invest time with each new client. "People need time to understand your investment philosophy and to gauge your services and expertise. Only then can they be expected to invest their hard earned savings through you."
He lamented that many brokerage houses are fixated with maximising the number of trades that they can get clients to execute in a short period, without regard for the returns that the client makes. "It is the short term-ism among brokers that has stunted the growth of this industry" he stated.
So is Abbasi Securities ready to conduct road shows and investor awareness drives? Not quite. Ali Abbasi prefers to spend time with each individual to inculcate a relationship. He insisted that while this may take a lot longer to grow his company's number of clients, he is convinced that this is the sustainable way to grow and continue to provide quality services to clients.