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KARACHI STOCK EXCHANGE
TURMOIL OF 16th JUNE 2008
1. INTRODUCTION
HISTORY/BACKGROUND
The stock market makes an appearance in the news every day. Youhear about it when it reaches a new high, in headlines like "TheKarachi Stock Exchange Average rose 50 index points today", when acertain stock plummets, or when the political scenario changes.Obviously, stocks and the stock market are important, but you mayfind that you know very little about them. What is a stock? What is astock market? Why do we need a stock market? Where does the stockcome from to begin with, and why do people want to buy and sell it? If you have questions like these, you've come to the right place.
The Basic Idea
Stocks in publicly traded companies are bought and sold at a stockmarket (also known as a stock exchange). The Karachi Stock Exchange(KSE) is an example of such a market.In your neighborhood, you probably have a supermarket that sellsgroceries. The reason you go the supermarket is because everythingyou need to run your home is available under one roof. It's far moreconvenient than having to make 10 stops at different stores.The KSE is a supermarket for stocks. The KSE is like a big room whereeveryone who wants to buy and sell shares can go to conduct theirtransactions.The Exchange makes buying and selling easy. You do not have toactually travel to the Stock Exchange; rather, you can call a stockbroker who does business with the Exchange, and he or she will gothere on your behalf to buy or sell your stock. With an Exchange inplace, you can buy and sell shares instantly.The Stock Exchange has an interesting side effect. Because all thebuying and selling is concentrated in one place, it allows the price of astock to be known every second of the day. Therefore, investors canwatch as a stock's price fluctuates based on news from the company,media reports, economic news and a range of other factors. Smart
 
buyers and sellers take all of these factors into account before makingdecisions.Karachi Stock Exchange (KSE) is the biggest and most liquid exchangein Pakistan with the average daily turnover of 525.15 million sharesand market capitalization of US $ 54.28 billion. The internationalmagazine 'Business Week' announced the KSE as the best performingworld stock market in 2002. Since then the KSE continuouslymaintains the reputation as one of the best performing markets in theworld.Since 1991, foreign investors have an equal opportunity together withlocal investors to operate in the secondary capital market on theKarachi Stock Exchange. The establishment of the new policy forforeign investors and initiated privatization in Pakistan has acceleratedthe development of the KSE, which had even 663 companies listed in2006. In addition, companies have a choice to be listed on one of thetwo markets - the ready market and the over-the-counter (OTC)market, which has lesser listing requirements. While the ready marketrequires listing companies to have minimum paid up capital of Rs 200million (about UK ? 1.8 m), the companies with minimum of Rs 100million can be listed on the OTC market.The Karachi Stock Exchange trades the KSE-100 Index. It is a highly-diversified index of 100 largest capitalization companies' stocks fromall sectors of Pakistan economy. A constantly revised index is a goodindicator of the overall Exchange performance over a period of time. In2005, 88% of the KSE total market capitalization was represented bythe KSE-100 Index.The membership in the Karachi Stock Exchange is limited. Only 200individual and corporate entities can register as members in the KSE.In 2005, 162 members traded actively on the Exchange. In addition,foreign corporate entities may also become the members of the KSEwith the condition that the nominee member of the company is acitizen of Pakistan.An organized market place for securities featured by the centralizationof supply and demand for the transaction of orders by member brokersfor institutional and individual investors.The Stock Exchange can be also seen as a control to regulate theMarketplace where listed public companies and traders buy and sellshares.
 
There are three Stock Exchanges in Pakistan, namely1. Karachi Stock Exchange; formed in 1947,2. Lahore Stock Exchange; formed in 1971,3. Islamabad Stock Exchange; formed in 1989.Out of all the three Exchanges, the Karachi Stock Exchange is thepremiere Stock Exchange of the country, with over 700 listedcompanies. It was established soon after the creation of Pakistan.The term ‘shares’ can be best defined as ‘represented ownership inpart of a company. When you buy a share in a company you become a joint owner of the business and share in the future of that business.This is also known as equityStudies have shown that over a twenty-year span, investment inshares has provided greater returns than most other forms of savings.Shares can provide you with a regular stream of income throughdividends as well as the potential for your investments to grow invalue. If the prices of shares go up, you can sell them for more thanyou paid. This is called capital gain.Dividends are returns paid to shareholders out of the profits of thecompany. Returns can be in the form of cash or additional shares of the company called bonus shares. Dividends are usually paid once ortwice a year depending upon the company’s profit distribution policyThis is one of the ways in which shares differ from deposit accounts.The principal amount of money you put in a bank or any fixed incomesavings scheme always stays the same e.g. if you start withRs.100,000 you will always have Rs.100,000 (other than any interestearned).changes in value according to the performance of thecompany. With good management, the value of your investment inshares of a company can grow over time so that your shares are worthmore than you paid for them. This is capital growthBuying shares can offer advantages over saving in deposit accounts:your investment may increase in value besides paying you dividends.You share the rewards when the company does well and the price of the shares goes up. But if the company performs badly, the share pricemay go down and the value of your investment will be reduced. Otherfactors, such as the performance of the stock market as a whole andthe general economic climate, may also affect the price of your shares.Investment in shares is therefore investment in ‘risk capital’. Theshareholders can be rewarded for taking this risk and the potential
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