ISLAMABAD: Pakistani individuals either have limited understanding of how to invest in the stock exchange or little faith in equity trade as there is a perception that the stock market is not a safe place to keep one’s money given its ‘volatility’.
This was highlighted by Chief Executive Officer of Spinzer Equities (Pvt) Limited Muhammad Liaqat Ali Khan during an interview with WealthPK.
The interaction was meant to find out as to how real these perceptions are and why people shy away from stock market investing. The stock market’s outlook, its current functioning, and some significant economic indicators were also discussed.
Muhammad Liaqat also shared views on his company’s strategic objectives and what prevents Pakistan’s stock market from realising its full potential.
The primary operations of Spinzer Equities include consultancy, portfolio management, share brokerage, and investment counselling. It is among the top brokers in the market.
Q: What is the current investment situation in Pakistan Stock Exchange and what deters individuals from investing in it?
A: In a country with 222 million people, there are only about 250,000 stock investors, including high-net-worth individuals. That is a terrible proportion.
If we compare Pakistan to its neighbouring countries, India and Bangladesh, the population participation rate in the stock market is higher by 4% to 5%. If we look at the developed countries, around 22% of Europeans and nearly 50% of Americans invest in the stock markets.
It is a fact that most individuals in Pakistan are unaware of the fundamentals of the stock market and how it operates. Additionally, there are several false beliefs that hinder the general public from stock market investment, which must be addressed.
Q: The stock market is viewed as being more unpredictable and riskier for investments, increasing the danger of loss and unsafe investing. Is this a myth or there is some truth to it?
A: There is no denying that the stock market is volatile and always vulnerable to rumours and news, but that does not make investments risky. Stock investments can both be safe and risky depending on the investor’s approach.
Investments become riskier when people’s desire to become rich overnight leads many to opt for speculative trading or leveraged products. This is one of the reasons why too enthusiastic stock market investors suffer losses and ultimately give up on stocks, missing out on tonnes of potential gains.
If you are trading only with your principal amount, even if the market declines, you will still have the option to wait for it to rebound. Other than this, companies offer dividends to their shareholders each year. It is, therefore, not prudent to trade continuously for profit.
The dangers involved in stock market investing can be reduced if it is taken as a long-term endeavour as opposed to engaging in speculative investing.
Q: Gaining a healthy return on their investment is the primary goal of investors. What are the factors hindering long-term equity investments?
A: Individuals take rumours and speculation seriously. In fact, I’ve seen a number of people start buying foreign currency in the hope the value of the dollar will increase soon. However, they are unaware that doing so will result in a supply-demand gap, devaluing the local currency, and eventually harming the economy.
Additionally, people are investing in cryptocurrencies, which are in my opinion riskier than any other type of investment. There are loopholes that allow capital to secretly flee from the country, severely harming the economy.
Q: Is there any awareness-raising campaigns launched by the government, or any entity, including the PSX, to educate potential investors on various avenues of investment?
A: PSX is making every effort to raise public awareness and inform potential investors about different investment options. We are constantly offering opportunities for investors and members of the general public to participate in the market.
Additionally, PSX has made some bold decisions to assist investors and boost their confidence in the market by tightening audit and trading regulations and increasing its oversight of brokers.
Q: What will you suggest to the beginners and the students interested in investing in stock market?
A: Although we are living in an era of instantaneous information and digitisation, persons with little or no experience in the stock market must seek assistance from asset management firms. People, who do have a basic understanding of finance, may choose to invest directly, although it is strongly advised that they select long-term investments.
