EDITORIAL: Prime Minister Shehbaz Sharif expressed satisfaction at the surge in the Pakistan Stock Exchange index, which surpassed the 145,000 mark, as indicative of increased investor confidence in government policies. One would urge the Prime Minister to take cognizance of three critical elements that belie the linkage between a surge in the index and higher investor confidence.
First and foremost, data released by the Finance Division for July 2025 indicates that foreign portfolio investment inflows, a measure of the confidence placed in our stock market from those resident abroad — be they of Pakistani descent or foreigners — registered negative USD 650.2 million July-June 2025 against negative USD 383.8 million in the same period of 2024.
In this context it is also relevant to note that foreign direct investment into the country fell from USD 1,963.6 million in July-June 2024 to USD 1,806.9 million in the same period of 2025 — a decline that the Prime Minister would do well to take note of as it accounts for limited success of the Special Investment Facilitation Council to attract foreign investment.
Second, the number of major players on our stock market is limited which no doubt prompted the Supreme Court of Pakistan to direct them to desist from the practice of calculating the stock market index and broadcasting it as it was deemed to be akin to allowing the fox to guard the hen house.
Sadly, this practice continues to this day reflective of a widespread tendency to collude in this country through establishing associations that allow the members to exert considerable pressure on government decision-makers even for items that in other countries operate within open market conditions for example sugar, cement, tobacco etc.
To this day, the stock market retains its ability to manipulate the index as and when the economic leadership requires a boost to claim precisely what the incumbent Prime Minister claimed, as have his predecessors. In return, the tax levied on the market players is small and this can be gleaned from the fact that the total tax collected from the stock market in Pakistan is less than around 15 billion rupees per annum while India collects more than a 100 billion rupees annually from this source.
And finally, a thesis by two students at the University of Chicago, Ali, and Omar Farooq Saqib, titled “Stock Market Efficiency: Evidence from Pakistan” concluded that “efficient market hypothesis does not hold, so far, at both macro and micro levels in the case of Karachi Stock Exchange…results indicate that proper measures need to be taken in order to improve informational efficiency and thereby assist potential into investors to invest in securities that are correctly priced. In short, policymakers have to go a long way to achieve even the weak form efficiency level in Pakistan. There should be a proper database, through which all the companies should be obliged to improve the quality of information provided to potential investors.”
But what should guide a government, be it democratically elected or not, is not only supporting data which is missing in this instance but also to acknowledge that there is no linkage between a buoyant stock market and the general public welfare for the simple reason that nowhere in the world do the low income and middle income people play/gamble on the stock market. This too is evident given that poverty levels today in Pakistan have reached a high of 44.2 percent as per the World Bank, and that is where the focus of the government must be.
Copyright Business Recorder, 2025
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