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Monday, July 17, 2017

Mutual Funds Not Brokers, Dictate The Bourse Now

On Tuesday, the KSE-100 index fell to a single-day low at 2,153 points. Investors were scared by the initiative of mutual funds and sold $ 11.6 million in stock. On May 12, the stock market moved up by 1,052 points and recovered about half of the lost value the day before, as the pendulum shook up about the case of the Panamanian newspaper. Mutual funds have absorbed all of their sales with net buying worth $ 15.3 million, although all domestic and international participants, including banks and corporate and insurance companies, have broadened their sales. But in a widespread competitive environment, every fund manager's goal is to work and sell for a cartel, because it is the effort and advantage to others.

This move has led mutual funds to decide the direction of the market. For decades, powerful brokers have been able to turn the tide according to their vested interests, causing a market collision, resulting in savings for small investors. One major broker, who expressed regret that the "exclusive deal" brokered into his account was only 15 feet a day, admitted "yes." "A few years ago, it was as high as 70pc. Until the regulator introduces "unreleased transactions", small investors will see a trading board and follow a big broker. Such a herd 's way of thinking was a huge loss when a large broker who "bought it in his name and sold it secretly through other brokers" put the entire group in trouble.

The nonprofit of the Exchanges, which began in the days of the SEC chairman Khalid Mirza, took more than a decade to lose power from the broker, but at last regulators were able to separate the ownership of the stock exchange from the executive. Nasim Beg, vice president of MCB-Arif Habib Savings, commented, "Stock brokers have had leverage transactions, but in the past they could have affected the market, but nothing more.

He observed that small investors took speculative positions on borrowed money and were hurt whenever stocks began to fall. In January, PSX officially signed $ 8.89 billion in sales and purchase contracts to sell 40% of its strategic stocks with the Chinese consortium. As a result of this move, the board of the three integrated securities exchanges in Pakistan has been deployed under the majority of supervision in China to strengthen the governance structure by reducing conflicts of interest of local securities brokers.

Stock brokers hold 40% of the shares as 20% of PSX shares are offered to local investors in the new offering.

The extensive ownership of the PSX that regulators want will reduce the risk of SCR (scrip) cornering and help find the price of the stock. If stock brokers lose the power to determine market trends, the gap is filled by the mutual fund industry.

According to the statistics released by the Mutual Fund Association of Pakistan (MUFAP), the mutual fund industry's total asset management (AUM) has surged to Rs. 625 billion in 219 funds with remarkable growth over the last 15 years.

Equity funds outperformed other funds by size and growth. At the end of May, the equity-type fund reached Rs.201bn, while the Sharia compliance fund reached Rs108bn, or $ 309bn or 49% of the total AUM of the industrial fund.

During the 11 months to May, equity-type funds and Sharia-compliant funds increased by 41pc and 35pc, which led to growth in most other categories of funds.

Equity mutual funds made 41% of revenue during this period and outperformed the KSE-100 index by 34%.

The equity-type funds have continued to sell PSX since March 2016 and invested $ 572 million during the 11 months of FY17. This was the second largest investment after an insurance company that bought $ 140 million in stock.

In May, the last month of this year's rally, mutual funds bought $ 47m worth of shares. All of these helped to absorb massive selling of other local and institutional market participants and a huge amount of foreign portfolio outflows of $ 631 million.

The fund manager inferred from the low-interest scenario that the company switched from income and money-market funds to equity funds, which complemented a massive new investment in the industry.

Some skeptics suggest that securities brokers still control the market through mutual funds. Others, however, claim that a small number of funds are owned by two large brokers, some of which are marginal in size, and therefore do not appear to be true.

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