The KSE-100 index has been ascending to new peaks in recent weeks. The rise of the index; about 28 percent since the start of this calendar year alone, has been stellar to say the least.
But behind the euphoric bull-run are some rather sobering facts.
Few if any new investors are being lured to the bourse, despite the glitz of the historic rally. The number of investor accounts registered with the Central Depository Company (CDC) had stood at 52,986 accounts as of June, 2011. By the end of the next fiscal (FY12), this tally had dropped to 47,943 and has since recovered only marginally to 48,438 accounts.
Similar is the case with CDC sub-accounts that brokers at the bourse maintain for their clients, through which their trades are executed. There are about 235,000 sub-accounts currently maintained at the CDC and according to their Head of Marketing, Ejaz Ali Shah, "that number has been relatively stagnant for quite some time."
Domestic companies are also seemingly unimpressed by the ever-increasing pool of funds available through local bourses. Even as the market capitalisation continues to climb, only half a dozen new companies have listed at the KSE since the beginning of FY11.
The average number of shares traded at the bourse is another party stopper. Average volume at KSE since 1 January 2013 tallies about 142 million shares; less than half the 324 million shares-volume recorded back in 2006.
Talking to BR Research, a former chairman of the KSE commented that "there is disconnect between the performance of the exchange and the state of the economy. It is true that markets move based on expectations, but to what extent can hope drive equity prices?"
This disconnect runs deeper than the direction of countrys GDP growth rate and that of the KSE-100. World Bank data shows that market capitalisation as a percentage of GDP in the country stood at 15.6 percent in 2011; having peaked at 21.6 percent in the previous year. By comparison, other regional economies have fared better.
Likewise, the value of stocks traded at KSE is negligible compared to the GDP. And thats not all; bulk of this value is also made up of those entities where the Government of Pakistan maintains significant shareholding i.e. OGDCL, PPL, UBL, NBP, PSO and PTCL.
In short, if the purpose of a stock market is to facilitate the corporatisation of private enterprise; the KSE, despite its record-smashing run, has failed miserably.
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