PMEX: The new investment frontier

All over the world, investors are increasingly interested in investment avenues such as precious metals, food grains and other energy resources. Extreme volatility and massive declines in stock markets are driving investors towards real assets and tradable commodities. In Pakistan too, those looking to invest their savings appear to be drifting away from the equities. Their focus seems to have shifted predominantly towards the Pakistan Mercantile Exchange (PMEX) where the average monthly trading value exceeded Rs50 billion for the first five months of this year. Trade in terms of value has shot up by 745 percent in Jan-May 2011 compared to the same period just one year back. SECP official spokesperson Shakeel Chaudhary highlighted that "195,729 contracts (were) traded on the PMEX with a traded value of approximately Rs72.9 billion in May 2011 as compared to only 5,930 contracts traded with a value of Rs3.5 billion in May 2009". Brokers also highlight that at present, more investors are eager to diversify their investments towards non-traditional avenues. "A year ago almost all trading activity was concentrated in gold," contended Chaudhary adding that presently there are much "more widely distributed trading volumes being shared between gold, silver and crude oil futures contracts". The regulator has played its role effectively during this period in attracting the flow of funds towards PMEX. The two institutions have together introduced new contracts on the market, both for physical delivery and cash settlement. The number of brokers listed at PMEX has mushroomed and transactions are cheap, quick and transparent, thanks to sound regulation. Recently, contracts in sugar and international cotton have been added to the existing offerings in gold, silver, oil, rice, palm oli and Kibor. The SECP is now considering the introduction of contracts in wheat, maize and currency. The recent downgrading of US sovereign debt and fears that a similar fate may befall France soon have sent global equity markets into a spiral. Investors also appear to be moving away from currencies and promissory notes, towards gold and other commodities. Judging by global trends domestic investors can be expected to gravitate towards commodities. For this reason, both the PMEX and SECP will have their work cut out in terms of ensuring accountability, transparency and efficiency in the functioning of the exchange. Yesteryears have seen equities rise and fall in terms of popularity in the country. When the countrys stock markets went bust in March 2007, restoring investors confidence became a long and arduous task. Both SECP and PMEX must continue to work with brokers and other stakeholders to ensure that a similar tragedy does not preclude the flight of this phoenix.