Sourajit Aiyer - South Asian Federation of Exchanges, Pakistan - Triggers That Can Effect A Trend Reversal In Declining Trend In Cash Equities Volumes - June 2013
CAPITALMARKETSJune | 2013Members’Contributionsp1SOUTH ASIANFEDERATION OF EXCHANGESp2DevelopingCapitalMarketsThroughRegionalCooperationSAFE-USAIDProject Updatep11 South Asian SecuritiesMarkets HighlightsAMONTHLYE-PUBLICATIONABOUTTHEDEVELOPMENTSINTHECAPITALMARKETINDUSTRYOFTHEREGIONSOUTH ASIANFEDERATION OF EXCHANGESp14 Major SAFEMarkets
PAGE 01Regional Financial Integration“Developing a Harmonized Regulatory Framework for the Capital Markets in Pakistan & South Asia”Visit to MeetAMCs IBs and BrokersMediaAdvocacySAFE Rule Book DraftThe second phase of the international travel by SAFEs consultants was concluded in April 2013. The consultants undertook travel to SAARC nations(Pakistan, India, Bangladesh, Maldives, Nepal, Bhutan & Sri Lanka) to hold meetings with theAsset Management CompaniesAMCs, Investment Banks IBSand Brokerage Firms to appraise them about SAFEs project, its objectives, outcomes and get their valuable feedback for incorporation in SAFE Rule Book,which shall serve as a guide for all SAARC countries to move towards regional financial integration.The consultants also held interactive discussions with the leading market participants and discussed key areas for improvement within the Capital Marketsinvestment landscape. The market participants provided their feedback on the potential challenges in implementing the changes proposed by SAFE andsuggested an optimal path which could be followed taking into account the current maturity and bottlenecks within the Capital Markets.The findings of the discussions within above areas with AMCs, IBs and Brokerage Firms shall help refine the Capital Market roadmap benefit realizationtowards harmonization for each SAARC country. It also provided input for the SAFE Rule book, which shall act as guiding principles for the entire SouthAsianregion.6thpress briefing was held on Monday, 29thApril 2013 at P.C Hotel Lahore, Pakistan.The event was widely attended by mainstream print and electronic mediaof the country. Mr. Aftab Ahmad Ch., MD Lahore Stock Exchange and Secretary General, in his speech, emphasized on the need to increase cross boarderfinancial activities within the South Asian region to create strong intraregional links and an integrated economic region. “SAFEs project on developing aharmonized regulatory framework shall serve as a first step towards building a financially integrated SouthAsian region”, he said. SAFEs prime consultant Mr.Amir Raza Khan gave an informative presentation on the project progress till date. Main focus of the presentation was to appraise the audience about thesecond phase of the international travel, which was undertaken in the mid of April 2013, to hold meetings with the Asset Management Companies (AMCs),Brokerage Firms and Investment Banks (IBs) in the SAARC region.7th press briefing was held on Thursday, 6th June 2013, at LSE, Lahore where SAFE announced the completion of the first version of its Rule Book whichdetails uniform model of regulations for adoption by all SAARC nations to financially integrate the region.“The proposed regulations are related to market operations, market integrity, enforcement regulations and all SAFE members in Pakistan, India, Sri Lanka,Bhutan, Maldives, Bangladesh & Nepal shall be encouraged to adopt provisions of this Rule Book, if applicable, in order to promote market integrity, efficiencyand transparency”, said Mr.AftabAhmad Ch., MD Lahore Stock Exchange and Secretary General SAFE during the press briefing.SAFE has drafted the first version of the Rule Book which details Uniform Model Standards for the SAARC region to financially integrate the capital markets. Italso gives recommendations for the law makers and regulators of each SAARC country related to market operations, market integrity and enforcementregulations, to make changes in the local legislation for a step towards a financially integrated SouthAsian region. SAFE is in the process of sharing this draftwith all the capital market stakeholders to get their valuable feedback and input about the standardization of regulatory regulations in SouthAsian which shallhelp refine SAFE Rule book.
ADX Partakes inAccountability &TransparencySymposiumBusiness and Economics organized financial markets. It also inspiresby the School of Business and closer cooperation on researchManagement of the American between ADX and various public andUniversity of Sharjah. private academic institutions”.Mr. Rashed Al Baloushi, CEO of ADX, “AtADX we are eager to play an activepartook in a panel discussion on role in the progress and prosperity ofAccountability and Transparency. the UAE; we are committed to- ADX Press Release ADX CEO addressed ccorporate supporting research activitiestransparency in the aftermath of the throughout various educationalrecent financial scandals worldwide. sectors. Universities are responsibleHe also talked about rules and for remarkable growth in the amountregulations put in place by ADX to and type of research that contributesimprove corporate transparency and to the advancement of the country.how ADX is enforcing these rules. We are keen to link our services to the“ADX requires listed companies with needs of the community, thus creatingsecurities traded on the exchange to a unique opportunity to formensure appropriate transparency partnerships with interestedthrough a regular flow of information organizations.” Added Mr. Alto the markets and to the market Baloushi. It is worth mentioning thatparticipants. This information ADX CEO Mr. Rashed Al Baloushi,consists of yearly, half-yearly and visited the American University ofquarterly financial information, and Sharjah (AUS) in November of laston-going information on major year where he delivered aholdings of voting rights.” ADX CEO presentation for AUS students on thesaid during his panel discussion. Of structure of Abu Dhabi Securitiesparticipating in the AUS organized E x c h a n g e a n d t h e l a t e s tsymposium, ADX CEO said “The developments in global financialAbu Dhabi Securities Exchange event allows ADX to update the markets.(ADX) took part in the The Fifth academic community in the UAE ofAnnual Research Symposium in the recent developments in theCONTRIBUTIONSMEMBERS’PAGE 02ADX Achieves100% inCompanyDisclosureComplianceAbu Dhabi Securities Exchange (ADX) Investment & Financial Servicesannounced that it has succeeded in sector, with an increase of 509%,achieving a 100% compliance rate in followed by the Banks sector with anfinancial disclosure statements of its increase of 15%.listed public joint stock companieswithin the deadline of 45 days from the Mr. Saif Sayah Al Mansouri, head ofend of the financial period. Listed Companies and acting head ofAll 66 ADX listed companies, local and Media at ADX commented: "Theforeign, disclosed their 1st Quarter collaboration between ADX and itsfinancial statements for 2013 within listed companies has always proved to- ADX Press Release the 45 days period given. The be a productive one. We can clearlycombined net profit of all listed see the positive impact of thiscompanies, as of the first financial cooperation through the companiesQuarter of 2013, has showed an fulfillment of their obligations on theincrease of 2% in comparison to the disclosure of the 1st Quarter financialsame period in 2012. The highest statements."recorded increase was in the
PAGE 03decade of the 21st century, from 5.0% incomes in developing/emergingEmerging pattern in the previous decade. At the same economies has also improved,time share of investments by directly contributing to higher savingsin savings and developed countries registered a and investments.decline to roughly 13.0% (from 19.0% Secondly, a sectoral change in theinvestments earlier). Similarly, on the savings front, economic composition of developing- D. R. DOGRA the contribution of emerging Asia, countries, from an agrarian market toMANAGING DIRECTOR & CEOparticularly India and China has a more capital-intensive regime hasCARE RATINGSincreased significantly, while that of made this shift more pronounced.major developed economies, Increased manufacturing activitiesparticularly United States has fallen. have automatically generated greaterFor the past two decades savings by investment demand. Moreover,developing countries accounted for improvements in productivity due to4.0% of world income. This ratio has integration of developing countriesS a v i n g s a n dsharply increased to more than 9.0% with global markets coupled withinvestments flowsin 2009; while total savings by high- sound macroeconomic policies havehave in recent years,income countries fell from 18.0% to propelled such dynamics. Also withwitnessed dynamic12.5% of global income. Indeed, the development of human capital takingand discernibleWorld Bank in documenting this trend centre-stage, demands for improveds h i f t s a c r o s sin one of its recent reports indicates education, health and other socialc o u n t r i e s a n dthat in ensuing years the developing infrastructure have also increased,regions; therebyworld will represent a very large boosting savings and investmentl e n d i n g m o r eshare i.e. approximately two-thirds needs.traction to theof all global savings by 2030; almostconvergence theory of growth anddouble from its 2010 level. Examining T h i r d l y , m a j o r s t r u c t u r a ldevelopment. It is increasingly beingthis shift is hence interesting. transformations such as financialargued that the gradual accelerationmarket developments and change inin growth of developing countriesWhy this shift in pattern of savings and institutional design and quality,since the 1990s has led to increasedinvestments? wherein developing economieshousehold incomes (especially ofThis shift in the pattern of savings and appear to have moved forward, havethose countries with a higherinvestment is, first and foremost, an also led to an increase in theproportion of young population),outcome of improved growth investment rate at a deeper level.which in turn has led to higher savingsprospects of developing countriesand eventually higher investmentover the years. Advanced countries It is important to note that growingrates in these countries.contributed nearly 80.0% to world economies require more savings andGDP a decade ago, the remaining investments to be mobilised andThis is evidentially supported by acoming from developing/emerging directed to massive physicalmuch visible structural break in theeconomies. This contribution has infrastructure development needs. Onglobal investments scenario.steadily declined to 60.7% in 2013, the other hand, advanced economies,Investments of developing countrieswith developing countries accounting having already established a capital-as a share of world GDP touchedfor 39.3%. Commensurate with this intensive production system, havearound 10.0% by the end of the firstincrease in growth, per-capita lower needs for incremental capitalADXImplementsBCC for DVPas donned by MSCI. ADX has already briefed its marketparticipants to explain the manyADX has already changed its aspects of applying the newoperational procedures for Delivery procedure. With the implementationversus Payment (DVP) in 2011. The of the BCC, ADX not only seeks toenhancement permits local reinforce the current DVP model but- ADX Press Release custodian to reject buy and/or sell also to adhere with internationaltrades for settlement where it has standards for financial marketsn o t r e c e i v e d s e t t l e m e n t infrastructure.confirmation from its client or thereis a mismatch in the settlement On the DvP enhancements, Mr.confirmation. Rashed Al Baloushi, CEO of ADXsaid "Abu Dhabi SecuritiesAbu Dhabi Securities Exchange The new BCC procedure-a part of Exchange applied the mechanism(ADX) announced that it has the DvP model- which took effect on as part of it plan of an integratedproceeded with the implementation the 5th of May, means that a buying performance strategy based on theof the enhancements to its Delivery investor will be paid cash application of best standards ofVersus Payment (DvP) model with compensation in the event of practice applicable in developedthe Buyer Cash Compensation securities being unavailable for markets globally in line with an ideal(BCC) on Sunday the 5th of May. delivery to the buying investor on investment environment to facilitateThe improvement is a key factor in settlement date. attracting foreign investment".achieving emerging market status
PAGE 04investments. Moreover, being driven based would also progressively world to control roughly half of theby consumption demand, their require less fixed capital investments, worlds capital, whilst accounting for asavings rate has also moderated over which could further prompt a decline massive chunk (87% - 93%) of globalthe years. These attributes thus make in these rates. growth by 2030. This suggests thatthis shift in pattern more perceptible. developing countries would gainFurthermore, policy interventions in resources to adequately andWhat could limit this shift in the emerging economies must also be efficiently finance major investments.savings and investments pattern? designed to enhance absorptive Hence, a significant escalation inAn underlying assumption and rather capacity, in the absence of which a terms of global investment is foreseenpre-condition to any such expected savings glut could be an impending from developing countries, with Indiashift in savings and investment threat. One of the greatest challenges and China leading this shift. In fact,pattern truly materializing, is the that for developing/emerging market China alone could account for nearlyof exponential development in economies would be increasing and one-third of global investment withdeveloping economies, led by a retaining foreign capital inflows. Brazil, India and Russia togetherwidening, deepening, strengthening, Limited depth in financial markets and constituting 13.0%, an investmentand maturing of financial markets low levels of financial innovation have bloc larger than that of the Unitedacross developing/emerging r e s t r i c t e d t h e c a p a c i t y o f States.economies. In case of slippages on developing/emerging economies tothese accounts the process could supply investment avenues with To conclude, in the long-run globalslow down and take longer to fully appealing risk-return characteristics, savings and investments, influencedemerge. which is a pertinent concern. by relative costs of capital, would bebrought to a productive balanceM o r e o v e r , e c o n o m i c a n d Conventionally, government across countries in tandem with theirdemographic forces could impact the investments dominate the investment individual absorptive capacities.dynamics of savings and investments. scene in developing economies. Presently, not only have developingWorld Bank estimates for world While it may be argued that countries been growing at a fasterpopulation stand at 8.5 billion in 2030 government investments help shore pace but also their productivity hasfrom around 7.0 billion in 2010. This up demand and balance the savings- improved significantly causing theiradditional growth by 1.5 billion is investment differential; they do often share in global savings andexpected to occur mainly in also crowd-out productive private investments to increase significantly.developing economies resulting in a capital flows. On the other hand, performance ofsignificant modification in their age developed countries under strainedstructure. If however, employment economic and fiscal conditions hasWay forward…opportunities and income generation slowed down considerably causing aDespite such possibilities of a declined o e s n o t m o v e u p w a r d s shift in investment holdings away fromin the share of developing andcommensurately, the savings rate uncertain advanced economies toemerging market economies in worldwould touch a natural cap and emerging markets. With majorsavings and investments, it isinvestments at their current pace structural transformations in lineimportant to note that such a transitionwould remain inadequate. This ahead, developing/emergingis unlikely in the near future. The nextdemographic pattern could likely put a economies would only continue todecade or so would continue to seedownward pressure on both savings accelerate their pace of growth and indeveloping/emerging economiesand investment in the coming years. turn their share in global savings andcontribute more to savings,Also, sectoral shifts more in favour of investments over the next decade.investments and growth. Indeed, theservices that are network-technology World Bank expects the developingC o r p o r a t e C o m m u n i c a t i o n s to participate in such programs so thatLSE Leads Department to encourage companies to there is no information asymmetrycome forward and share their financials regarding our listed companies.Corporate Briefing and non financial projects before themembers, TREC Holders, investors D i r e c t o r F i n a n c e H i g h n o o nProgram For and the media to abridge the Laboratories Mr. Javaid Hussaincommunicational gap between the delivered the presentation before theHighnoon listed companies and the market p a r t i c i p a n t s a b o u t f i n a n c i a lparticipants through this platform. performance and future plans of theLaboratories Mr. Farid Malik, General Manager -LSE- LSE Press Release company. He stated that the company iswhile addressing to the participants in process to add new countries to itsstated that the purpose of the Corporate export as the company is already theBriefing Program was to provide a first pharmaceutical company to exportplatform to our listed companies in France and Saudi Arabia. He alsowhereby such companies can stated that the company has a potentialperiodically visit the stock exchange to produce beyond its current capacityThe representatives of Highnoon and share the latest corporate provided the trade between theLaboratories, Company Secretary Mr. information with the stakeholders such neighboring countries are relaxed. HeKhadim Hussain, Director Finance Mr. as the brokers and the investors alike. also shared that the company hasJavaid Hussain visited The Lahore He said that since the market price of invested in building a dedicatedStock Exchange to participate in the any company is a function of the hormone facility, a sachet facility and acorporate briefing program, an financial and strategic information consumer facility to expand theinteractive program initiated by the available in the market, therefore, LSE business.Lahore Stock Exchange under the considers it essential for the companies
PAGE 05While, there is no agreed upon single opportunity. However, these factorsRole of markets in universally recognised definition of rarely persist in the long run. Rather,the term Energy Security, different the long run prices of exhaustiblepromoting energy countries have accorded different resources like fossil fuels aredefinition at different times about reflections of the scarcity rents ofsecurityenergy security depending on how such resources, and true reflections-Nazir Ahmed Moulvi and Niteen M Jain,much the country is dependent on of market fundamentals. For e.g. theSenior Analysts, Research & Strategy,Multi Commodity Exchange of India Ltd. foreign energy resource, share of improvement in energy efficiencypolitically unstable regions in that followed the oil price shocks inimports, diversity of primary fuel mix the 1970s and increased thrust onetc. For decades, energy security research and development to findwas concerned with only physical more energy efficient ways of doingsupply of oil. However, it now things clearly illustrates the long termSouth Asian countries constitutedincludes natural gas and electricity effects of price signals on oilaround 5 percent of total crude oiland extends along the entire supply economy. The only deterrent to thedemand in 2011 compared with littlechain. Notably the concept now also full desired effect to be felt is in themore than just 2 percent in 1991. Theincludes the price and not just the economies where price signals in ancountries from the region are importphysical availability of these fuels. economy are not truly reflecting thereliant from 75 percent to 95 percentSince all economic activity requires underlying fundamentals but maskedof annual consumption. Notably, thethe use of energy resources, the by government measures of variousreserves for known hydrocarbons incontinuing availability of energy at a kinds such as subsidies.the region are less than 2 percent ofprice that is not deterrent to broad Some other virtues of markets…the global reserves. With rise ofeconomic growth is a major aspect of One needs to keep in mind here thateconomic power, the regions energyenergy security. On similar terms, markets have traditionally emergedconsumption is expected to be on anenergy security as defined in paper A due to scarcity of resources. This hasupward trajectory in coming years,Quest for Energy Security in the 21st been an institutional response of theaccording to experts. In such aCentury: Resources and Constraints human civilization to combat scarcity.situation, energy security naturallyby APERC is the ability of an The most important function of suchattains status of paramounteconomy to guarantee the availability an institution is not scarcity mitigationimportance for all import dependentof energy resource supply in a through supply augmentation plansnations, particularly to ascertainsustainable and timely manner with as such. Rather, it sends across thehealthy economic growth in comingthe energy price being at a level that signals to the demanders about thefuture. Quite appropriately, India haswill not adversely affect the economic existing state of the resource throughbeen on task in ascertaining energyperformance of the economy. the prices (that reflect on the scarcitysecurity for some time now. In thisPrices and hence markets key to value), and eventually often leads tofront, government is stronglyenergy security demand management. At the samepromoting renewable sources ofWith real prices of oil hovering at high time, market prices will adjust toenergy like solar and wind power. Inlevels (see chart 1), the role of true demonstrate where resources areJuly 2009, India unveiled a US$19prices and hence the market required, and where they are not. It isbillion plan to produce 20 GW of solardiscovering them cannot be under- the markets that drive innovation inpower by 2020. In October 2010,estimated from the context of energy various human endeavours, andIndia also drew up "an ambitious plansecurity. The important facet in energy sector is no exception. Theto reach a nuclear power capacity ofattaining energy security is traditional human response to63,000 MW in 2032. Such efforts arereconciling the short term objectives diminish scarcity value of resourcebesides acquisition of overseaswith those in the long run. In this use has spurred up development ofenergy resources largely throughcontext, price signal provided by competitive alternatives like bio-fuel,ONGC Videsh Ltd. the overseasmarkets especially in futures market nonconventional sources of energyinvestment arm of ONGC. Besides,have its utility in both short term and like wind energy, wave energy, solarIndia has already initiated steps on oillong term. Over the long term, a energy, and of course, nuclearprice deregulation, as Union Financemajor means by which competitive power. These alternatives addMinister in April 2013 reiterated thatmarkets provide security is by resilience to the economy againstThe government is looking at movingsending price signals to both energy shocks, thus eventuallyaway from the administratively fixedconsumers and current and potential helping the cause of attaining energyprice model in the oil and gas sectorproducers. Additionally, availability of security. Besides this, the healthyto a more market-related price.efficiently discovered prices in an competition would spur innovationsSimilarly, "Government of Pakistan isenergy economy would clearly unveil as the energy stakeholders wouldalso putting greater emphasis onthe prices risk faced by each energy continuously seek new ways ofRenewable Energy and has set astakeholder and hence provide an adding to their financial clout intarget of 10% renewable energy oropportunity to prepare against the energy economy. Lastly efficient2700 MW in the Countrys energy mixrisk rather than being caught markets fosters the development ofby 2015”. The government ofunaware. derivatives markets that are nowBangladesh also has recently set ahaving increasing role to play giventarget to increase the countrys sharethe sustained high level of volatility.of renewable energy to 5.0 per cent Though the short term response toThough derivatives markets do notby 2015 and 10 per cent by 2020. But change in prices may be difficult toeliminate any risks from the system,are measures towards ascertaining comprehend, long term implicationsbut they provide options for marketenergy security aimed just about of price response cannot beparticipants to manage the varioussecuring overseas energy assets underestimated. Short-term pricerisks in the energy system and henceand/or just building up various viable spike may be due to logistical,plan and operate in more judicioussources of energy? In this context, it technical, oligopolistic behaviour ormanner.is important to define energy security, because of hoarding with thethough it is not an easy task! intention to capitalise on some
PAGE 06MCX-SXcommences listingservices- Commences with listing of3 companies — Dabur India Ltd.being the first company to list on theexchange- Offers various benefitssuch as lower cost of issuance toissuers and zero processing feesand initial listing fee- Exchange would soona n n o u n c e i n n o v a t i o n s f o renhancing issuers experienceMumbai, May 2, 2013: MCX-SXtoday commenced its listingservices with three companieslisting their securities on the CapitalMarket Segment of the Exchange —Dabur India Limited being the firstcompany to come on board. Withthis, MCX-SX is now geared up tolist shares of companies that arealready listed on other exchangesand of those companies proposingto come out with initial publicofferings.MCX- SX has a simple listing feestructure, which is attractively. We are sure that the new stockpriced in comparison with otherexchange, with its wide network, willexchanges. The Exchange offersreach out to every nook and cornerbenefits such as no processing feeof the country and help the companyand no initial listing fee, whichas well as country in broad basingmakes MCX-SX the most attractivethe investor base. We wish the teamvenue for listing of securities. TheMCX-SX all the very best in theirExchange charges only annualeffort to create a world class stocklisting fees based on a veryexchange and a preferredsimplified and reasonable structure,destination for the issuers andwhich is significantly less than theinvestors.”existing industry average. This willtranslate into reduced cost ofThe Capital Market and Futures andissuance and continuous listing forOptions segments of MCX-SX werethe companies listing on MCX-SX.i n a u g u r a t e d b y S h r i . PChidambaram, Honble UnionWelcoming these companies onFinance Minister, in Mumbai onboard, Mr. Joseph Massey MD &February 9, 2013. Shri. U K Sinha,CEO, MCX-SX, said: “We remainC h a i r m a n , S e c u r i t i e s a n dcommitted to offer issuers andExchange Board of India (SEBI) andecosystem intermediaries best ofDr. Arvind Mayaram, Secretary —service standards, which will be wayDept. of Economic Affairs, Ministryabove the current benchmark. Weof Finance, Govt. of India werew o u l d e n s u r e c o n t i n u o u sguests of honour on the occasion.innovations for enhancing issuersexperience.”Mr. Mohit Burman, Director, DaburIndia Ltd, said, “We are delighted tolist Dabur India Limited on MCX-SX- MCX-SX Press ReleaseCompanies listed on MCX-SXS.No Company Name Sector1 Dabur India Limited Personal Goods2 Pennar Industries Limited Industrial Metal and Mining3 D P S C Limited ElectricityListing Fee Schedule – MCX-SXInitial Listing Fees - MCX-SXS. No. Slab (Rs. InCrores) MCX-SX (In Rs.)1 Initial Listing Fees NILAnnual ListingFees MCX-SXS. No. Paid up Capital (Rs. In Crores) MCX-SX (InRs.)1 Upto Rs. 5 Crore 7,5002 Above Rs. 5 Crore and upto Rs.10 Crores 15,0003 Above Rs. 10 Crore and upto Rs.20 Crores 25,0004 Above Rs. 20 Crores and upto Rs.50 Crores 50,0005 Above Rs. 50 Crores and upto Rs.100 Crores 75,0006 Above Rs. 100 Crores and upto Rs.250 Crores 125,0007 Above Rs. 250 Crores and upto Rs.500 Crores 200,0008 Above Rs. 500 Crores and upto Rs.750 Crores 325,0009 Above Rs. 750 Crores and upto Rs.1000 Crores 475,00010 Above Rs. 1000 Crores and upto Rs.2500 Crores 625,00011 Above Rs. 2500 Crores 1,250,000
PAGE 07is considered an open border. It can be Free Trade Area (SAFTA), but the tradeRegional Integration considered the second stage of within the region did not flourish. Manyeconomic integration.A customs union political reasons and tussles are behindin South Asia: Highis a trade coalition composed of a FTA this situation of SAARC. So, are we notTime for with a common external tariff. The capable of doing anything and puttingpartaking countries come up with a our hands on hands? Is this the fete?Implementation common external trade policy; World Bank says that SAARC region- Chittaranjan Pandeymeanwhile, import quotas are used in has 54.7 percent of its land asAssistant Manager, R&D Department,Mercantile Exchange Nepal Limited. few cases. Establishing a customs agricultural land and 48 percent of theunion increases economic efficiency total population is rural population in theand establishes closer political and region (World Bank, 2011). In case ofcultural ties among the member rural population, the dominantcountries.It is the third stage of occupation again is the Agriculture foreconomic integration.Acommon market which India is the only country which hasis a type of trade coalition composed of a specific policies and has made itsFTA(for goods) with common guidelines remarkable presence in the agriculturalon product regulation, and freedom of sector in the world. Pakistan follows butmovement of the factors of production still has a long way to go. Nepal also(capital and labor) and of enterprises made a plan called Agricultureand services. The physical, technical Perspective Plan (APP) but it was aand fiscal barriers are best possible tried failure plan as the implementation couldto remove for the higher economic not be done. APP is going to end inwelfare. An economic union is a trade 2017, so the country is busy draftingcoalition composed of a common Agriculture Development Strategymarket with a customs union. The (ADS) which is supposed to be muchparticipant countries have both common more strategic than the APP andpolicies on product regulation, freedom implementable too. In case of Nepal,of movement of goods, services and the around 65 percent of the people arefactors of production (capital and labor) involved in agriculture but onlyand common external trade policy. The contribute around 35 percent to thecountries often share a common GDP. The main reason behind is thecurrency. Previously the regional subsistence agriculture. And this is notRegional Integration can be understoodintegration was undertaken to maintain the problem of Nepal only; most of theas a process where countries in thethe economic and political stability countries in this region havenearby region opt for a regionalamong the countries in the region, but subsistence agriculture whichagreement, of course with the primenow the concept has totally changed. generates low value in the economy.motive of enhancing the regionalThe world is a global village now, people When it is already identified thatcooperation and development guidedor countries do not need to integrate for Agriculture is one of the major weaponsby the regional level institutions andthe safety and security only but also to of the region itself to conquer thelegislation at the regional level. Weenhance the mobility and to learn new objective of economic growth, throughunderstand that whenever we talk aboutskills and technology transfers. Getting this write-up, I would like tothe development, even before 1990,back to where we started, European conceptualize a step that could helpdevelopment was only about theUnion is one of the best examples of agriculture develop its revenue, but witheconomic development. Though theeconomic integration which followed the less people and those people not fullylegacy of the regional integration maybasic notion which each of us studied devoted to agriculture could invest theirgo back to many decades, a distinct andsince childhood – “United we stand, time in service sectors or others asdeveloped form of regional integrationDivided we fall”. wanted.was exhibited by the European regionafter the Second World War. SecondSouth Asian Association for Regional First of all, the region needs to have aWorld War proved devastating forCooperation (SAARC) is not a new term Common Agricultural Policy (CAP) likeEurope which then decided to integratefor many of the people around the globe. European Union (EU) used to have initself as a regional unit. Yes, it took longSAARC was established in 1985 with a earlier days. Agricultural Integrationbut now European Union (EU) is ansimilar motive of the regional integration should be one of the major aims of theexample for others to follow in the world.and political consensus by seven region and steps should be taken tocountries and Afghanistan joined the flourish the concept. The policy needs toA Preferential Trade Area (PTA) is agroup in 2007 only. When the major have objectives of increasingtrading coalition that gives privilegedobjectives for the formation of the agricultural production, assuringaccess to definite products among theSAARC are looked into, they were: effective and efficient food supplies,partaking countries. Usually, the majorpromoting the welfare of the people in ensuring a standard quality of life forapproach is by reducing tariffs, notthe region; accelerating the economic farmers, soothing the market turmoil,obliterating them completely. A PTA cangrowth, social and cultural progress in and guaranteeing rational prices forbe established through a tradethe region; contribute to mutual trust, consumers. The responsibility for suchagreement. It is the first stage ofunderstanding and helping to negotiate policy development should be taken byeconomic integration. Then comes theone anothers problems; strengthen the the Agriculture ministries of theFree Trade Area (FTA). A FTA is a tradecooperation with other developing respective countries and all thecoalition whose member countries signcountries; to maintain peace in the countries should ensure that the policyan agreement, which eliminates tariffs,region, etc. But what has happened, gets implemented. Needful andimport quotas, and preferences on mostnothing much. The results would sound necessary modifications can be doneof the goods and services tradeddiscouraging. We established South time-to-time but it is high time the regionbetween them. If the mobility of theAsian Preferential Trade Area (SAPTA) starts thinking about the same.people is also made free within thefirst, we then upgraded to South Asianpartaking countries, in addition to FTA, it
PAGE 08National Clearing Company of existing title of their Clearing MemberFacilitation of Pakistan Limited (“NCCPL”), is Account in NCSS, with the requiredcontinuously striving for the Designated Branch of Settling BankMultiple Settling prosperous and well developed and NCCPL. Accordingly, CMs cancapital market in line with the best settle their NCSS Money ObligationBank Accounts for practices. A recent service with any of the Designated Branch ofClearing Members i m p l e m e n t e d b y N C C P L i s Settling Bank. A new “CM Settling- Muhammad Lukman, “Facilitation of Multiple Settling Bank Bank Screen” has been madeChief Executive Officer,Accounts for Clearing Members”. available in NCSS whereby CMs whoNational Clearing Company of Pakistan.have more than one Settling BankPreviously, Clearing Members (CMs)Account, will be allowed to identify theare required to designate Only Onerequired Settling Bank Account onBank Account in the DesignatedSD-1 i.e. a day before the SettlementBranch of a Settling Bank. For thatDate as per the Designated Timepurposes, a Tripartite Agreement hasSchedule. Accordingly, all NCSSbeen executed among Nationalmoney settlement and collateralClearing Company of Pakistanrequirements shall be processedLimited (“NCCPL”), CM and Settlingthrough the identified settling accountBank. In order to provide furtherfor that Settlement Date. Thefacilitation to CMs to manage theiridentified/revised Settling BankNCSS money settlement moreAccount shall be applicable only for aefficiently and effectively, effectivesingle Settlement Date. At the end offrom Monday, February 25, 2013,relevant Settlement Date, NCSS shallCMs have been allowed to designateautomatically revert to the mainmore than one bank account in any ofSettling Bank Account of a CM forthe Designated Branch of a Settlingonward NCSS money settlement.Bank for all NCSS money settlementand collateral requirements. CMswho are desirous to avail the facility ofhaving Multiple Settling BankAccounts, will be required to enterinto a Tripartite Agreement withPMEX and TameerMicrofinance Banksign MoUApress release issued after the event TMFB will also offer this productstated that the PMEX and TMFB have through Easypaisa across thedeveloped an understanding that country. Easypaisa was launched inTMFB shall introduce and provide an December 2008, Tameer MicroE-Gold products through the trading Finance Bank Limited and Telenorplatform of PMEX to its customers. Pakistan joined hands to launch- PMEX Press ReleaseThe investors shall be able to buy/sell Pakistans first Branchless Bankinggold through TMFB branches/agents Service. As Easypaisa has a vastand Branchless banking Channels outreach in urban and rural areas ofusing their Mobile Accounts (M- Pakistan, a large number of peopleWallet) through the trading platform of would get a unique opportunity toPMEX. invest in gold with ease andconvenience.Pakistan Mercantile Exchange The proposed product offered byLimited and Tameer Microfinance PMEX and TMFB will give an This product will also lead to theBank Limited (TMFB) signed a MoU opportunity to the common man to documentation of Gold investmenton introducing a gold-based invest in Gold with trust, security and which is currently beyond the radar ofinvestment product. The MoU was convenience. The lot size for the national economy. The proposedsigned by Mr. Shazad Dada, investment in gold will also be very small size of investment will also giveChairman PMEX & CEO Barclays small around 0.001 Tola which will an opportunity to the middle andBank PLC, Pakistan and Mr.Tariq make it conducive for a large lower middle class to invest in GoldMohar, Deputy CEO, Tameer Bank in population to invest in Gold with their which otherwise has now gone out ofthe presence of representatives from o w n c a s h f l o w e a s e a n d their range through the traditionalboth organizations at the PMEX convenience. They would be able to means of investment in Gold.Office in Karachi. keep their gold in the official custodyof PMEX.
PAGE 09Triggers that caneffect a reversal inthe declining trend ofthe cash equitiesvolumes: UsingIndias exampleEquity volumes traded in the secondary for South Koreas F&O volumes whichmarkets consist of cash equity (delivery are significantly high). In contrast, Indiaand intraday) and equity derivatives has lagged these geographies, and the(futures and options). Cash delivery, proportion of high-yield cash hastypically gaining from long-term declined to a low. While cash investorsappreciation, earns the highest yield. held back, options had the opportunityOption earns the lowest. Despite intra- of profiting from market movements. Assegment yields holding firm, the lower cash equities volumes hasblended yield has come under pressure impacted the yields earned bydue to a structural shift in the mix – a brokerage firms putting top line- Sourajit Aiyer move away from cash equities and pressures, it is worth taking a look at theSenior Managertowards F&O. Historically, cash equities possible triggers that can help effect aMotilal Oswal Financial Services Ltd.comprised ~40% of overall equity reversal in this current trend away fromRecent structural shift in the mix of volumes in Americas, 30% in Europe cash equities and towards F&O. Weequity volumes and ~40-45% in Asia Pacific (adjusted look at Indias case.Possible triggers that might effect a better projections and induce after accounting for marketreversal in this trend investors to take up long term cash movements. This should help avoidequities positions. over-aggressive pricing and ensurepost-listing performance to someèSeveral macroeconomic pressuresextent. Apart from domestichave impacted input/interest costs, èRetail participation within cashcompanies, Hong Kong Exchangesdemand, capex plans and overall segment has not picked up lately.experience with foreign listingscorporate performance and investor Primary market issues are a popularshows there are quality companiessentiments. Market movements entry point for retail investors, asglobally who are looking to raiseechoed these sentiments of seen during FY08 and FY10 whichmoney fromAsia. In India, IDRs are auncertainty. The markets have coincided with a growth in retail cashroute to list foreign companies here,largely moved without a sustained volumes. But the lacklusterbut this has seen limited success solong-term trend, with few periods of performance of most issues post-far.positive news-flow boosting listing dampened participation insentiments for short bursts. An ease- future issues. This has led to lowerout in the macro climate is essential. subscriptions since FY10, except forWPI inflation moderating to below a short spurt in cash participation in~7% since Jan 2013 with the easing FY11 during quality PSU issues likeof global commodity prices is Coal India, Power Grid. A case inwelcome news. Sustenance of point is Indias Asian peer – China.easing in inflation may lead to China has seen a surge in retailsuccessive interest rate cuts, going participation in cash equities over theforward. The government has also last decade due to large IPO issuesset the ball rolling on certain reform from government owned companies.measures, which is encouraging Thus, public issues are critical to kickthough a lot is still left to be done. start investor confidence andNevertheless, easing of the macro increase cash participation. Pricingpressures will help catalyze the of public issues is equally important.capex and investment cycle of SEBI has recently made the rightcompanies, boost demand volumes noises regarding companiesand corporate profitability. It should compensating retail investors if thegive the markets a clearer direction, prices decline sharply post-IPO even
PAGE 10This article is meant for informationèThe critical role of institutions in èParticipation in India is currentlypurposes only. It does not construe to bemobilizing retail money into equity restricted to the top few scrips.any investment advice. It is not intendedmarkets is apparent. In USA, the WFEs market concentration dataas an offer or solicitation for theinstitutionalization of retail savings shows that the top 5% companies bypurchase or sale of any financialplayed a major role in equity trading value comprised 62% ofinstrument. Any action taken by you onmobilization, led by Defined trading on the NSE in 2010.the basis of the information containedContribution pension plans, which Expanding research coverageherein is your responsibility alone. Wehave comprised ~40% of US mutual (especially on quality midcap scrips)have exercised due diligence infund assets over the last decade. In will enable transparency andchecking the correctness of the2010, ~32-38% of their corpus was information access on a largerinformation contained herein, but do notinvested into equities across all age universe of stocks, and helprepresent that it is accurate or complete.groups. As per a BCG report, showcase those companies withThe readers should rely on their ownpension funds globally comprised strong business performance andinvestigations.the largest share of the institutional corporate governance. This couldasset management AUM (~55% in help retail investors identify value-2010). South Korea also saw higher picks from amongst the midcaptrading from institutions like universe and participate in theseinsurance, AMCs and pensions from companies with much greater2004 to 2010. India needs a similar conviction.robust mobilizing mechanism.Though EPFO is allowed to deploy èDividend policy of companies has10% into equities and 5% via mutual also come under discussion, givenfunds, this is yet to take off properly the market movements whichas yet owing to various concerns impacted capital appreciation.over this asset class. As market Currently, Indian firms have amongstdepth improves, the volatility in the lowest average dividend payoutstocks should reduce to some extent ratios globally. If minimum annualand help address some of these dividend payout is implemented,concerns. If EPFOs allocation is then the stocks which are backed bydeployed fully, say via mutual funds, solid fundamentals, good businessit can mean an incremental performance and robust businessmobilization of over Rs 500bn into models will look attractive enough forequity funds. investors to hold cash positions in.Peers like Brazil have implementedèHigher mobilization by domestic minimum dividend commitment ofinstitutions will also have a spin-off 50% for new listings. Similar policieseffect in inducing more direct for India will incentivize long-termparticipation by investors. As more cash positions.retail investors enter, the retailinvestor penetration will increase India has a demographic advantage,from its current ~1.5-2% - which is and the ability to service this young,much lower than global averages income-growing generation viaincluding Asian markets like China online/mobile trading will beand South Korea. This indicates the instrumental in facilitating higherpotential headroom for growth. participation. In South Korea, growth inwireless broadband, buoyed by flat ratedata plans, made online trading theèThe cost of trade, amongst thedominant mode of share trading.highest in India, also pinches duringSecondly, equity participation is majorlythese volatile times. Taxes are highercentered in Mumbai, Ahmedabad, Delhiin cash delivery creating an obviousand Kolkata. There is further opportunitybias towards options. While STTin towns where large pools of wealth arehave been reduced in various equityavailable, but equity participation hassegments in the recent Unionnot yet picked up. As and when some ofBudgets, however there may bethese triggers play out, the cash equityscope to make cash equitiesvolumes in India should increase tocompetitive by addressing theglobal averages.overall cost of trade items further.
Foreign Secretary Ranjan Mathai arrived here today to hold consultations with senior Bhutanese officials during which status of India-assisted projects and other keybilateral issues will be discussed. Mathai is scheduled to meet the Chief Adviser of the Interim Government Lyonpo Sonam Tobgay and call on the King of Bhutan JigmeKhesar Namgyel Wangchuck apart from meeting other senior officials, during his three-day visit.Earlier this year, External Affairs Minister Salman Khurshid, during his visit to Bhutan, had assured top leadership that India will not let their projects slow down. "Theprojects will continue on pace and whatever timeline is to be laid out, we will work on that timeline", he had said. This year, Rs 3614 crore has been earmarked for Bhutanas compared to Rs 3409.06 crore in the revised budget for 2012-13 for various projects and other activities. Mathais three-day trip to Thimpu follows the understanding,reiterated during the visit of the Bhutanese King here as the Chief Guest for the Republic Day celebrations in January 2013, that India and Bhutan should have regularhigh level contacts to discuss issues of mutual interest.Mathai in Bhutan to discuss India-assisted projects business-standard.comPAGE 11Sharia-compliant insurance company Amana Takaful (Maldives) PLC has announced a cumulative profit of MVR 4.5 Million (US$292,208) since listing on the MaldivesStock Exchange back in 2011. Following the company’s second annual general meeting held Sunday (April 28), Amana Takaful said a 10 percent dividend of MVR 2.6million (US$168,831) would be paid among its Maldives-based shareholder members for the group’s performance during 2012. Growth for the company during last yearwas said to be driven in particular by demand for medical and motor insurance following amendments to government regulations that has seen a number of insurersmoving to offer 3rd party coverage in these areas.Aspokesperson for the company claimed that 3rd party motor cover was anticipated to continue to help drive growth for its Maldives operations in the coming years as aresult of recent legislation imposed on the country’s motorists. During its AGM, Amana Takaful also announced an underwriting result – earnings from premiums afterdeducting the costs of operating expenses and insurance claims – of MVR 20.7 million (US$1.3 million). This was said to be a 61 percent increase on the previous year.As well as Sharia-compliant insurance, a growing number of private groups in the Maldives have moved to offer Islamic financing to their customers. Specialist groupssuch as the Maldives Islamic Bank (MIB) are set to be joined in the segment by Bank of Maldives (BML), which this month announced the appointment of a four-memberShariaAdvisory Committee.Amana Takaful posts MVR 4.5 million profit since Maldives Stock Exchange float minivannews.comThe Colombo Stock Exchange (CSE) is planning its second road show for the year, this time to Dubai in June, CSE officials said.“We have sent letters of invitations to all the stockbroking companies last week. This road show is at the initial stages and we hope to invite many other companies aswell,” Surekha Sellahewa, CEO CSE told the Business Times. She said that Dr. Sarath Amunugama, Senior Minister and Deputy Minister of Finance and Planning willlead the delegation which includes Central Bank GovernorAjith Nivard Cabraal, SEC and CSE officials.The last CSE road show was in Mumbai in February.Analysts saidthat after Mumbai, some funds which the road show teams met with have invested in the CSE. “We hope to get a similar response in Dubai as well,” an analyst said. JohnKeells Holdings, Carson Cumberbatch, HNB and NDB are slated to participate in the road show along with others, according to him.CSE plans Dubai road show in June sundaytimes.lkThe Karachi Stock Exchange has asked the federal government to revisit its policy on corporate taxation, proposing that it exempt dividends from 10 percent tax andreduce corporate tax to 25 percent. This should be especially to those listed at the bourses, or wanted to be listed, to improve listing of the companies aimed at assistingthe operations of the capital market, according to KESC sources. In a report it submitted to the federal government for Budget 2013-14, the Karachi Stock Exchangesuggested that the government encourage listing of state-owned companies such as Pak Arab Refinery Company, various development finance institutions andPakistan Steel. This would enable such enterprises to access long term capital from the private sector while investing public will be provided with new ventures forinvestment. The KSE argued that tax on dividends is in fact double-taxation. For instance, when a company earns profit it pays tax at 35 percent before distributingdividends to its shareholders. At the time of distribution of dividends to its shareholders, it further withholds tax at 10 percent on such dividends thereby suffering doubletaxation.Explaining why it opposes the tax on dividends, the KESC said when a company receives such dividends it becomes part of its distributable profit, and hence when thispart of profit is distributed to its shareholders, it again attracts withholding tax at 10 percent. Multiple taxation results whenever a dividend is paid by a company. TheExchange gave a detailed explanation on reduction of the corporate tax rate to 25 percent in order to encourage companies to list at the bourses. The government oftenexpress its concern that new listings have not picked up despite the stock market boom. For instance, a total of 63,897 companies are registered with the Securities andExchange Commission as of January 31, while only 587 companies are listed at the Karachi Stock Exchange. Until June 2002, there was a tax differential of 10 percentfor listed companies. Unlisted companies were subject to an income-tax rate of 45 percent whereas listed companies’ rate is 35 percent. In Budget 2002-03 thegovernment decided to progressively reduce the tax rates of private limited companies, thereby removing the tax difference of 10 percent between private companiesand public companies, leaving no tax incentive for listed companies. Tax rate on dividend from unlisted companies and listed companies is currently 10 percent whichonce again highlights the fact that there is no advantage to listed companies. The KSE proposed the attraction of more companies for listing, and for this the tax rates forlisted companies could be reduced to 25 percent. A reduced tax rate for listed companies will serve as an incentive to the companies for enlistment, and this will help inimproving documentation of the economy and thus have positive impact on the country’s overall economy.KSE proposes listing of top state-run firms thenews.com.pk
Despite being touted as a miracle cure for all ailments troubling financial institutions, mergers have failed to improve the performance of almost a dozen financialinstitutions. Among the 12 sets of mergers completed in the domestic financial sector within the last two years, only four have so far succeeded in registering profits.Likewise, share prices of half of the listed merged entities are also below face value at Nepal Stock Exchange. “A merger does not translate to miraculous profitsimmediately. It takes time for the merged entity to become profitable as they have to deal with additional issues such as effectively managing human resources along withits operations,” said chief executive of Synergy Finance Rajendra Man Shakya.Synergy Finance that was formed in November 2012 following a merger between Alpic Everest Finance, Butwal Finance and CMB Finance, has recorded a net loss ofRs 35.65 million in the second quarter of the current fiscal year. “Problems such as low rate of loan recovery and absence of proper projects to finance remain the sameeven after a merger as it used to be with the concerned individual institutions before the merger,” said Shakya, who is also president of Nepal Finance Companies’Association. “We have observed that merged companies need to be given time to recover and become profitable.” However, Narayani National Finance, which wasformed after a merger between Narayani Finance and National Finance in November, 2010, has fared well. It has earned Rs 25.74 million in the second quarter.Moreover, the company was able to earn 33 per cent more operational profit even before first year of merger was over. But at the other end is H&B Development Bankthat was formed following a merger between Himchuli Bikas Bank and Birgunj Finance in 2011. The class ‘B’ bank that was performing fairly is now in trouble due to thelarge scale fraud committed with the involvement of its employees. Investors are also apprehensive about investing in shares of merged entities and their prices havetaken a plunge of late.Among 10 listed merged financial institutions, share prices of only six firms are above Rs 100 — the face value.“If the merged financial institutions are good then they will perform better and investors will also be willing to bid a higher price,” said acting president of Nepal Investors’Forum Raj Kumar Timilsina. Global IME Bank that was formed after merger between Global Bank, IME Financial Institution and Lord Buddha Finance, andMachhapuchchhre Bank following its merger with Standard Finance have been able to increase their profit and subsequently their share prices have also almostdoubled in the past six months. “In most cases, mergers have been taking place just to avoid the regulator’s action when the particular company’s financial health isdeteriorating due to which the merger becomes forced and creates more problems,” pointed out Timilsina, adding that investors look forward to mergers betweenpromising companies such as the ongoing merger process between NIC Bank and Bank ofAsia Nepal.According to central bank, 28 financial institutions have already got approval to merge into 13 institutions, and 24 financial institutions have received Letter of Intent (LoI)to merge into 10 institutions.Mergers not a cure to all financial ills thehimalayantimes.comPAGE 12The Bombay Stock Exchange (BSE) has launched an Islamic equity index based on the wide-measure S&PBSE 500 index, providing a new benchmark for Islamic investors in one of the worlds largest stock exchanges.The new index comprises the largest 500 companies in the BSE, out of more than 5,000 listed, which fit Islamicfinance principles such as bans on investing in alcohol, tobacco and gambling-related businesses.The countrys first Islamic index was launched in 2010, also by the BSE, tracking the 50 largest and most liquidstocks.The Mumbai exchange had a total market capitalisation of $1.32 trillion as of January 2013.Indias Islamic banking industry has progressed slowly because banking rules require lenders to declare therates of interest they charge customers, putting it at odds with Islamic banks which base their products on profitrates instead.In order to cater to an estimated 177 million Muslims in India, the largest Muslim minority population in the world, the industry is hoping to develop investment productsthat work around this requirement, but political and legal obstacles mean progress has been slow.Bombay Stock Exchange launches broad-based Islamic index profit.ndtv.comThe Abu Dhabi World Financial Market will offer companies a variety of incentives to set up offices in AlMaryah, including the ability to operate without a local business partner, easily ship money out of thecountry and work under international laws.It would be a direct competitor to the nine-year-old Dubai International Financial Centre, a 90-minute driveaway, which successfully developed Dubai as a center for the regional financial community. Among otheradvantages, the DIFC established its own court system, which has won praise for bringing Western-stylelegal proceedings to disputes within the financial centers jurisdiction.The Abu Dhabi World Financial Market will officially brand the 114-hectare Al Maryah development as thecapitals financial center. Formerly known as Sowwah Island, the project is home to the new headquartersfor theAbu Dhabi Stock Exchange."I can tell you that all the local Emirati investors are talking about [the financial zone]," Fathi Ben Grira, the chief executive at Menacorp, told The National. "All the biginternational financial institutions would love to be in Abu Dhabi, because of its stability. There is a general perception that they can seize opportunities in terms ofbusiness."November_2010_-_Sowwah_Island_-_Artists_Impression.jpgThe competition for international financial companies has intensified in recent years, with Bahrain andQatar aggressively pursuing Middle East operations. Abu Dhabi and Dubai both offer several free trade zones, but Dubai has been the leader in attracting the regionalfinance and banking industry. "I dont think [the Abu Dhabi World Financial market] necessarily is competition for the DIFC," Kai Schneider, a partner at the law firmLatham & Watkins in Dubai, told Dow Jones. "If you use Europe as a model, theres room for more than one financial center in a region and each financial center canfocus on a separate sector of financial services. London is asset management, Luxembourg is where funds are domiciled and Ireland is where theyre administered."The specifics of the Abu Dhabi zone still need to be worked out, industry observers note. "For now the first steps have been taken to build a legal and regulatoryframework," Nick Clayson, a partner at the law firm Norton Rose in Abu Dhabi, told Dow Jones. "But its not clear whether any particular laws, regulations or the judicialposition will be the same as the DIFC."Abu Dhabi Establishing Financial Free Zone worldpropertychannel.com
PAGE 13The United Arab Emirates already boasts two airlines, two major international airports, three stock markets andtwo tourism hubs trying to attract wealthy holidaymakers. Now it seems the Arab Gulf country (population 7.9million) will soon have two offshore financial centers. A brief decree issued two months ago – but publicized onlyrecently – officially established theAbu Dhabi World Financial Market as a financial free zone exempt from federalcivil codes. The details so far are scant, but the hub, located on Abu Dhabi’s shiny new Al Maryah Island, isexpected to have its own legal structure, financial regulator and courts.And it appears to be headed toward directcompetition with the Dubai International Financial Centre just an hour and a half’s drive down the road. It’s an oft-repeated pattern in the U.A.E., a confederation of seven emirates in which oil-rich Abu Dhabi and commercially-minded Dubai predominate. Abu Dhabi started Etihad Airways in 2003, 18 years after Dubai launched EmiratesAirline. Abu Dhabi began to build out its real estate and transportation infrastructure about a decade ago; Dubai’sEmaar Properties, which was central to Dubai’s building boom and built the Burj Khalifa, has been around since1997. Dubai’s ritzy hotels and long coastline made it a tourism destination for Europeans, Russians and Chinese;Abu Dhabi now wants a piece of that action, too, positioning itself as a cultural hub with branches of theGuggenheim and Louvre museums.When it comes to finance and financial hubs, some people question whether the competition will be healthy or damaging in a country this small. “The question is whetherthe UAE is a market that has enough scale to support three exchanges and two financial centers,” said one Dubai-based financial executive who didn’t want to be namedbecause of the political sensitivity of the issue. “It’s a question of whether you’re going to eat yourself.” (Dubai has two stock markets, and Abu Dhabi has one. Talks of amerger between the exchanges have dragged on for years).It’s possible that the DIFC and the Abu Dhabi World Financial Market won’t be direct competitors, because they will specialize in different parts of the financial servicesindustry. Dubai, for example, could be a hub for investment banking, whileAbu Dhabi could focus on asset management. Competition, meanwhile, may force both citiesto make their centers as efficient and cheap as possible for the foreign companies they’re trying to attract.“If done appropriately I think it’s a great step forward,” said Kai Schneider, a partner at the law firm Latham & Watkins LLP in Dubai. “I don’t think it necessarily iscompetition for the DIFC. If you use Europe as a model, there’s room for more than one financial centre in a region and each financial center can focus on a separatesector of financial services. London is asset management, Luxembourg is where funds are domiciled and Ireland is where they’re administered.” Other people areskeptical. One executive suggested that while there will be rhetoric about cooperation and establishing complementary instead of competitive cost structures andregulations, the reality is that Abu Dhabi and Dubai both want fully-fledged financial centers that draw in the full spectrum of financial services companies. Cooperationwould be ideal, but “my guess is they won’t do that,” the executive said.The establishment of a financial free zone on Al Maryah comes as the island’s central business district, called Sowwah Square, nears completion. The district containsfour glistening new towers and a low-lying central building shaped like an upside-down trapezoid where theAbu Dhabi Securities Exchange is set to move in.Already thefirst of the buildings to be completed in Sowwah is almost fully occupied, according to Al Maryah Island’s website, and the second is well on its way. Deloitte, JPMorgan,General Electric and a slew of other foreign companies are already there. It isn’t clear how the new financial free zone decree will affect existing companies onAl Maryah.The next step, lawyers say, will likely be a series of decrees issued by the Abu Dhabi government that establish a regulator, judicial bodies and other administrativeentities to oversee the World Financial Market.That, they say, is what happened when the DIFC was established in 2004.Bankers say Abu Dhabi has been strong-arming companies to move to Al Maryah and Sowwah, hinting that they’ll be better-positioned to get business from the oil-richgovernment if they play along with its economic development strategy. Whether those tactics result in a thriving financial hub remains to be seen, of course, and AbuDhabi has a lot of catching up to do if it wants to pose a serious challenge to Dubai. According to official statistics this month, Sowwah Square is currently home to 1,500people and 46 multinationals.After nine years, meanwhile, the DIFC has a working population of more than 14,000 people and 940 companies.Abu Dhabi’s New Financial Center Seen Competing With Dubai blogs.wsj.comThe Colombo Stock Exchange (CSE) is currently in the process of amending regulations pertaining to the listing of debt securities, according to CSE’sAssistant GeneralManager of Regulatory Affairs, Renuke Wijayawardhane. “We are currently in the process of revising some of the Listing Rules. However, nothing has been finalised atthe moment and we are still at the discussion stage,” Wijayawardhane said.Amendments to the current regulatory framework follows a spate of new listings of corporate debt, mainly debentures, on the CSE by listed and unlisted companies,seeking to capitalise on generous concessions granted in Budget 2013.Proposals in question include the exemption of the withholding tax on interest income earned by investing in bonds and debentures listed with the CSE. Speaking toMirror Business about potential barriers to the establishment of a vibrant corporate debt market in Sri Lanka, Wealth Lanka Management (Pvt.) Ltd Chairman MangalaBoyagoda highlighted lack of information and regulation on unlisted companies as a potential challenge.“Recent steps taken to promote the creation of a corporate debt market are very positive. However, statistics on unlisted companies are lacking. So, it’s very difficult to geta clear understanding of the depth of the Sri Lankan corporate debt market,” he said. Boyagoda also called for more stringent regulation of unlisted companies, whichexpect to list debt securities. “Unlisted companies issuing listed debentures must be regulated, so there is control over who is allowed to list debentures and at whatamount. Investors have had their fingers burned in similar situations before, so proper regulation will be important to establish confidence,” he noted.Policy consistency with regards to tax concessions was highlighted as a further area of concern. “Removal of the withholding tax and other tax concessions will help growthe corporate debt market. However, there are concerns about their impact on government revenue.”“Now that they’ve implemented it, there has to be some consistency to allow the market to adjust but with current revenue levels, I have concerns about the sustainabilityof tax concessions,” Boyagoda said. Meanwhile, Heraymila Securities Limited CEO Ravi Abeysuriya called for streamlining of listing procedure and a greater focus oneducating investors about the corporate debt market. “There is a lot of change that will be required if the corporate debt market is to grow. Even now people are onlybuying debentures and then holding on to them so they’re not really being traded.” “More will have to be done to educate investors the approvals process, which is gearedonly towards equity, needs to be simplified,”Abeysuriya stated.CSE to revise debt market rules dailymirror.lk
PAGE 14MAJORSAFE MARKETS*Please note that the closing index values for every day have been quoted for all the indices.MayDHAKA STOCK EXCHANGEDSIBOMBAY STOCK EXCHANGESENSEXNATIONAL STOCK EXCHANGES&P CNX NIFTYNEPAL STOCK EXCHANGENEPSESTOCK EXCHANGE OF MAURITIUSSEMTRICOLOMBO STOCK EXCHANGEASIKARACHI STOCK EXCHANGEKSE-30KARACHI STOCK EXCHANGEKSE-100
The cap confusionBusinessStandardDifferent agencies define large, medium or small cap, according to their own methodology. Understand them better.We humans find comfort in classification and segmentation. That is why many of us prefer the well-demarcated aisles in supermarkets, rather than poppinginto the local grocers cluttered store. We extend the same desire to investing and consider it especially important when there are over 4,000 listed stocks andhundreds of mutual fund (MF) schemes.Acommon method of classification is the market capitalisation (MC)-based method, wherein stocks/funds are divided into large-cap, mid-cap and small-cap.MC is the product of the market price and the number of equity shares outstanding. It may be computed either on a total or a free-float basis. Many investorshave a clear preference regarding the category they would like to invest. While some stick to large-caps, others gravitate towards mid-cap and small-capstocks. However, their definition varies widely. For instance, the Bombay Stock Exchange (BSE) considers stocks falling within the first 80 per cent of the free-float market capitalisation as large-caps and those within 80-95 per cent as mid-caps while computing their indices. The National Stock Exchange (NSE)considers stocks falling within 75 per cent and 95 per cent of the free-float market capitalisation as part of the eligible universe, while computing the NSEMidCap Index.Even mutual funds differ markedly. For instance, Birla Mid-Cap Fund uses an absolute filter of stocks with a market-cap between Rs 150 crore and Rs 1,500crore. DSP Micro Caps universe constitutes of stocks that are not part of the top 300 companies by market capitalisation. What constitutes small-cap for somemay be micro-cap for another.Heres some solution to the segmentation conundrum:STRIKE A BALANCE: Rather than obsessing over the the classifications, investors could opt for clear options within each category. For instance, HindustanUnilever and Jyothy Laboratories are large and mid-cap stocks, respectively, by most definitions. Owning both will give investors an exposure to two goodcompanies across the market-cap spectrum. If you prefer mutual funds, choose go-anywhere funds, which operate without any market-cap bias. However,even in these, the funds philosophy will lead to a tilt in some direction. Fidelity Equity Fund, for example, is primarily large-cap oriented, while RelianceRegular Savings is mid-cap oriented, though both profess to be market-cap agnostic. Choose the one whose style you are comfortable with.CHOOSE INDEX FUNDS/ETFS: These mirror specified large and mid-cap indices and offer a low cost option to gaining exposure to a variety of stocks at onego. In fact, undertaking monthly SIPs in one Nifty/Sensex-related exchange-traded fund (ETF) (example Benchmark NiftyBeES or Franklin Index Fund –Sensex) and one mid-cap ETF (say Benchmark Junior BeES or MOST Midcap ETF) could be good enough.Any change in the underlying indexs compositionautomatically leads to a rebalancing of your holding.There is also no fund manager-related risk.CHOOSE APPROPRIATE FUNDS: Ensure the large or mid-cap fund you are investing in is true to its mandate. For instance, Franklin Bluechip strictlyensures over 80 per cent of its corpus is invested in large-cap stocks and, hence, is a good fund for those seeking a large-cap fund. Funds which frequentlymodify their mandate end up confusing and disappointing investors.BE COGNISANT OF BIASES: Often, the preference for one category over the other may be due to recency bias. If stocks or indices belonging to a certaincategory outperform for some time, investors gravitate towards that class. For instance, mid-cap indices outperformed large-cap indices for a large part of2010. This led to heightened interest for mid-cap stocks. Similarly, during the market correction of 2008, large and well-known companies fell less than therest, thereby creating an illusion of safety, leading to a penchant for large-caps.Continuous Listing RequirementsColombo Stock Exchange (CSE) is currently examining the feasibility of making its continuous listing requirements (CLR) permanent. At present under itsmain board listing requirements, there needs to be a 25% minimum free float; and in the case of listing in the Diri Savi secondary board, the requirement is aminimum 10% free float. However, what more often than not happens, after an initial public offering, where CLR are conformed to, subsequently however thefree float is diluted due to strategic interest in the company, and the requirement of a 25% minimum free float in the case of main board listing and 10% in thecase of Diri Savi, is, therefore, more often than not, observed in the breach. Contentious issues such as which shareholder/shareholders should shedhis/theirs “excess” equity stake/stakes in order to conform to CSEs CLR, are among the matters that the CSE is grappling with, before mandating CLR. Aplethora of new listings, some mandatory and some voluntary, are now before the CSE. Among the mandated listings are the need for registered financecompanies to list by end June, banks by end December and insurance companies by next year.-12YEARS OLDGrants McCann Ericksons Public Relations Department celebrated its 12th anniversary.CREDIT CARDS SHRINKThe number of active credit cards in circulation as at end of last year decreased by 42,769 (5.2%) over that of November, and continued with this decline vis-à-vis the end December 2009 figure, a shortfall of 62,035 (7.4%) over that figure of 840,509. However, the outstanding credit card balance in the review periodincreased by Rs. 853 million (2.8%) to Rs. 31,616 million month on month in December, and marginally increased by Rs. 241 million (0.8%) when comparedwith the end December 2009 figure of Rs. 31,375 million.RICE IMPORTS UP132%Colombo tea auction prices last November declined by 4.5% year on year (YoY) to US$ 3.38 a kilo, whilst tea production for the year increased by 13.1% YoYto 329.4 million kilos.However rice import prices in the review period increased by 132.3% YoY to US$ 849.10 per metric ton (pmt) C&F. Similarly white sugarprices increased by 22.6% YoY to US$ 709.3 pmt C&F and crude oil by 7.2% YoY to US$ 84.80 per barrel C&F.But wheat prices in the review period declinedby 11.8%YoYto US$ 225.50 pmt C&F. (Source: Central Bank of Sri Lanka)(Source: CBSL)South Asian Federation of Exchanges (SAFE)SAFE Secretariat96-W, Khyber Plaza, 2nd Floor,Fazal-ul-Haq Road, Islamabad-44000, Pakistan.Tel: +92 (51) 282 6763Fax: +92 (51) 280 4215Email: firstname.lastname@example.orgURL: www.safe-asia.com||