The financial markets of any country are essential for its economic growth. About one out of 100 people in Bangladesh invests in the stock market, while 4.5 per cent of India’s population is involved in the financial markets.

Considering these figures, it seems certain that the proportion of Pakistani investors would fall in the same range. However, the figure is quite dismal, with only 0.1pc of the population or about 250,000 people investing in the market. Among these, the number of active investors remains well below 100,000, compared with India, where the active investor count is above 10 million, followed by Bangladesh, with almost 2m people participating in financial markets.

Stock market investment remains an alien concept for the people. The first words that come to the minds of the masses when talking about the market include ‘gamble’, ‘conventional’ and ‘risky’. This owes largely to the malpractices of brokers amid weak controls, resulting in financial losses for investors during the 2008 crisis.

Lack of knowledge also remains at the heart of the problem. People don’t even know how to open an account with the broker, let alone make informed investment decisions. Even finance professionals find it cumbersome to get the hang of the fundamental and technical analysis of the shares, which impedes their market participation.

The stock exchange is relatively untapped since capital flows to real estate and gold

Discipline is imperative while investing in the stock market. However, herd behaviour is a norm prevalent in the Pakistani market, where investors try to follow the rally without conducting or studying proper research. As a result, they also panic at times of selling pressure leading to blood baths where people lose their fortunes and curse the market as a whole.

In addition, these investors spread their delusions, thus moulding the attitude of prospective investors against the market. As a result, the fact that stocks as an asset class are lucrative for long-term investing is overshadowed because of the investors’ uninformed and uneducated investment decisions.

Pakistani society is a consumption-oriented society with an abysmal savings rate. They prefer spending lavishly or investing in real estate and gold. The market capitalisation of the Pakistan Stock Exchange stood at Rs 7.5 trillion for FY22, and the value of the mutual fund industry at Rs1.2 trillion compared to Rs88tr for real estate and Rs21tr for bank deposits.

Religious factor also comes into play where the belief that stock investing doesn’t conform to Islamic teachings is ubiquitous in the minds of the general public.

Financial markets do not grow in solitude; they rely immensely on other financial sector components, including banks, asset management companies, and insurance companies. However, rather than exposing their assets to the stock market, these institutions prefer ‘playing safe’ and rely heavily on the public sector. Even individuals seem obsessed with investing in banks, government bonds and national-saving schemes, which prove detrimental to the health of the stock market.

The current precarious situation, however, induces hope about the immense potential of financial markets, which remains untapped. The foremost step is to create awareness among the masses about the mechanism for investing in the stock market.

Youth forms a predominant part of the country’s population and are more receptive to novel ideas, so they should be the prime target. The exchange and other players in the market should coordinate their efforts and partner with different universities to enhance awareness about the stock market and the investment discipline required to exploit returns from this investment avenue.

A viable and fruitful strategy would be to organise trading competitions where the participants are provided with virtual currencies along with fitful training sessions. This virtual trading with illusory currency will amplify their market and investment knowledge by practising investment in the real-time market. Top traders should be provided with cash deposited in their brokerage accounts to translate the entire experience into increased market participation.

The brokers also have a role to play in addressing low involvement. Special attention should be directed to investors who are a novice to ensure they do not suffer a setback owing to their lack of experience and knowledge. The brokers should also spread their networks to smaller cities and conduct awareness sessions in far-flung areas to allure the prospects.

Awareness should also be created about the Islamic index (KMI Index) to dispel the doubts of conservative investors. Attention should be directed towards digital marketing along with television and radio marketing to alter the immutable attitude of people as well as spread information among the masses.

The ten-year returns (year-to-date from CY2011–CY 2021) remain rosy for the stock market (14.55pc) compared to gold (6.67pc), Defence Saving Certificates/Special Savings Certificates (9.38pc), Pakistan Investment Bonds (8.98pc), t-bills (7.6pc) and deposits (5.01pc).

Special attention should be directed towards this potent sector to ensure that the prospects do not remain bleak and the economy benefits from the increased liquidity in the country’s financial markets.

The writer is part of the Capital Market Future Leaders Programme

Published in Dawn, The Business and Finance Weekly, April 10th, 2023