PSX boom: An investment dilemma

KARACHI:

Initial signs of excitement are evident in some business indicators. Indeed, the Pakistan Stock Exchange (PSX) is not a true representative of the country’s economic structure nor does it reflect the purchasing power of Pakistanis. However, hitting all-time highs has people worried about its sustainability, and rightly so. We have already discussed in detail that the rally is supported by improving investor expectations and attractive valuations. Remember, markets are forward-looking, so pundits no longer expect a credit default, are happy about the smooth assessment of the International Monetary Fund (IMF), and are optimistic about citizens’ determination for structural reforms in state-owned enterprises, taxation and energy sector.

So the dilemma for Pakistani stock market investors – have I missed the rally? More commonly, “I’ll buy in ‘dips’.” It’s hard not to find humor in the fact that there has been no dip, no correction, no “technical” resistance despite the KSE-100’s possibly steep 50% rise in less than two quarters. Many are frustrated that they see the writing on the wall but don’t put their money where their mouth is. While others reject the development, citing the disconnect between the real economy and the capital market economy. Thank goodness there are no cries of manipulation by brokers and high net worth individuals. While those with huge unrealized losses would (should) have recovered, the new entrants were few and far between.

The question that needs to be answered is how fertile is the human psyche to want to “time” entry points. Empirical evidence suggests that long-term stock investors – who have not engaged in superiority complexes using a myriad of techniques and other calls – clearly outperform wealth accumulation. They are the ones betting on the economy, companies and management prospects. This is what matters most – having faith in investment calls, actively monitoring your ‘partners’ and doing your due diligence while strictly following financial discipline to save wealth on a regular basis. If you don’t show Mr Market due respect and take him for a ride – you’re setting your capital on a slippery slope.

Reading PSX breaks more records as bulls charge

PSX’s current rally is being driven by a buying spree of large, rational and futures from insurance companies and has been boosted lately by strong foreign markets for Pakistani stocks. Mind you, people who expect multi-baggage returns are using $20-30 million to make almost $100 million in a few years if they can identify quality companies to acquire shares. These views are further complemented as PSX listed companies use their own cash to buy back their own shares. This calendar year, nearly $150 million worth of equity has been raised by the sponsors/companies themselves. These were the first signs of confidence and owners showing faith in their operations – why then were people waiting for a dip?

This is no time to throw hats in the air or throw in the towel. Much work is needed by policymakers to develop capital markets as a viable source of capital for companies – the true reason for their existence – and a reliable means of savings for investors. The Honorable Finance Minister is apparently passionate about increasing the reach of capital markets and allowing the government to raise debt more cheaply through direct borrowing. To make it a vibrant, fair and less volatile market, the number of active investors should increase 10 times. How?

1. Progressive taxation is introduced. The capital gains tax should be much less at a lower amount than Richie’s wealth. A salaried person is taxed at 35% on lower income, why millions of rupees of dividends and profits are taxed at a lower rate?

2. The perpetual swing of extremely low and high interest rates must moderate and range between a sustainable 13-17%. Avoid the boom and give investors predictability about the opportunity cost of investing in stocks.

read more PSX breaks the 60,000 point milestone

3. The amount of money that goes into low tax real estate should be put back into the capital market. Fairly assess values ​​and higher additional tax for second homes/lots to prevent dead equity.

4. The corporate tax rate – along with Super Tax – should be gradually reduced to 25% over the next five years with tax credits for listing on the stock exchange to boost the documented sector. Yes, during Dar’s days, these good things happened.

5. SECP’s efforts to enhance competition and investor awareness by reducing capital requirements for brokers and digitizing the process should be accelerated. Regulations should incentivize companies to divert a portion of their provident funds and take exposures in job-creating equity markets, ventures, startups, and private equity.

In conclusion, for investors thinking of investing in a relevant “peak index” today, they need to take a long-term view of parking a portion of their wealth – ideally every month – for a decade in companies of their liking, belief and their results. research. Remember not to put all your eggs in one basket (stock market, industry, company) and be aware of the consequences of taking “advice” and overleveraging yourself in search of quick money. Money (halal) is hard to earn and no “fanei” Khan gets rich overnight. As our beloved Charlie Munger said, “the best thing a man can do is to help another man learn more.” Don’t forget to give it back to society.

THE AUTHOR IS AN INDEPENDENT FINANCIAL ANALYST

Published in The Express Tribune, December 4^u2023.

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