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Margin Financing
Margin Financing, Practices, & Conventions

The Karachi Stock Exchange (Guarantee) Limited

National Clearing Company

Notice For All Members (List of Securities for Margin Trading and Margin Financing)

Notice For All Members (Regulations for Margin Trading, 2004)

nt Instruments
to buy

examining the first component of any successful investing strategy - deciding what to buy. The vast
truments trading on our markets provides Pakistani investors with fantastic opportunities but also with
e challenges. Equities, corporate and government bonds and Exchange Traded Funds (ETFs) are just
asset classes traded on the Karachi Stock Exchange. Understanding your own attitude to risk is vital
g which of these asset classes are appropriate for you to invest in.

e a number of reasons why you might initially consider a potential investment - press reports, news
recommendations, sudden price movements and chart breakouts to name but a few. But as all long-
ul investors know, you must do your own research.

al data

fundamental data is vital. And you'll need to be confident that that data is accurate, comprehensive
e. The fundamental data is collected direct from the companies themselves from their interim and final
s updated within minutes of being released. This data is subject to various checks to ensure it is
h quality and very comprehensive.

forecasts

data research, though vital will only identify past performance - so how can you analyze future
u can start by looking at the Broker Research. The Broker Research is a consolidated view of what all
nalysts believe are the future prospects of a particular business. This will include key metrics such as
nd consensus buy, hold and sell recommendations. Broker research data gives you an instant view of
all position on that stock. This research data is available in the newsletters published by the brokers or

information

might be to gauge what level of optimism the directors of a company may have in the business that
That optimism (or pessimism) is usually reflected in the number of shares that the directors are buying
their own company. Directors' buying and selling activity is therefore another way of analyzing future
t this also needs to be interpreted carefully. Limited selling activity for example is not necessarily a
as directors may have very genuine reasons for looking to reduce their holdings or to generate cash for
ons. Buying activity is perhaps a more useful indicator. If there has been a significant level of buying
or preferably more, directors buying a substantial amount of shares over a number of transactions)
e that the managers of the business have expressed a high degree of confidence in their company.
sume that you have done your research and have identified a suitable investment opportunity. The
look great, the Broker Research indicates that the analysts have a positive view of the company's
cts and this is shared by the directors themselves who have been actively buying stock. What next?
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he timing right can be equally as important as deciding what to buy.

to buy

our investing experience we will find shares that seem to represent an excellent buying opportunity.
ought them they fail to fulfill t heir promise. To a large degree, share price movements are directly
two key factors - supply and demand. If enough investors share your view that the stock is worth
ct accordingly, then the price will start to rise. So how can you assess whether other investors are
an look at the extended trading data on Exchange’s website.

data

ng every trade in real-time, a Bid and Offer price is shown alongside each script. As a lot of the trading
arket intermediaries such as market makers, it is important to realize that this is not an exact science
e viewed with a degree of caution. None the less it can be a useful indicator of the buying and selling
given time.

analysis

lysis can be one of the most effective ways of finessing the timing of a purchase. Technical analysis is a
in its own right, but even a number of very simple studies can help. For example, a short term moving
above a long term moving average - known as a golden cross- can be a very positive signal.

analysis

ding of forthcoming corporate events will also influence the timing of a purchase. Is the company about
ed for example? Or are the interim or annual results expected shortly? Would it be sensible to delay the
after these events? Understanding how a share reacts to news stories may also influence the timing of
nge Insight news analysis enables you to look at all the announcements for a particular company and
the share price has subsequently reacted to that news. If you are looking for long term steady growth
h degree of volatility resulting from announcements, then you may decide to pass up the opportunity.

and selling

ng into any trade it is important to have a clear understanding of the expected future performance of
d an exit strategy, either in the form of a stop loss if the share fails to perform as expected, or a target
t. You can instruct your broker to set a stop loss at the time of purchase, as well as, to let you know
get price has been reached. To monitor the details to your relevant portfolio and you can use the My
review the change in price and monitor the scripts that you have a stake in.

analysis

d portfolio analysis facilities will enable you to see which sectors your portfolio is invested in and to
by ensuring that your investments are diversified and you are not overexposed in any sectors. Karachi
ge only can provide data for your own advanced portfolio analysis facilities, for this please review our

map

n serve a dual purpose. Firstly they give a valuable instant visual representation of how a particular
or is performing. Color coded to show price movement they can be a useful early-warning indicator that
ht short term opportunities. They are also a good way of monitoring an existing portfolio. A portfolio
l highlight which of your shares are rising and falling at any given time could help you exit losing
re incurring significant losses. Karachi Stock Exchange only can provide data for your own heat maps,
review our data portal.

we measure the long term success of our investment strategy?

he performance of our portfolios against individual indices or sectors is one way. This type of
is the way in which the performance of most professional fund managers is measured. Comparisons
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made between the overall portfolio and the individual shares within it. This will help identify over and
ming shares.

How to Invest
Exposure Limits:

The KSE has an effective var based Risk Management System under the regulation governing Risk Management of
Exchange. As a part of risk management, KSE has devised circuit breakers as under.

T+2:

There shall be a circuit breaker in case of price fluctuation 5% or Rs. 1.00, whichever is higher, from the closing price
of the previous day. Accordingly trading will be restricted within upper and lower limits of 5% or Re. 1.00 whichever
is higher from last closing price.:

Futures Contract:

There shall be a circuit breaker in case of price fluctuation 5% or Rs. 1.00, whichever is higher, from the closing price
of the previous day. No trade in the Futures Contract market will be allowed beyond the above price fluctuation In
order to strengthen the Risk Management, the amount of Net Capital Balance has been enhanced to Rs.2.5 million
under the Capital Adequacy Ratio the members are allowed to trade up to 25 times of the Net Capital balance.

Clearing House Protection Fund:

In order to ensure smooth settlement, the KSE has established a Clearing House Protection Fund. In case of default
of a member, shortfall, if any, is fed through this fund up to a certain limit as approved by the Board from time to
time. The contribution to the Fund is made by the members of the Exchange.

Investors Protection Fund:

An Investors Protection Fund has also been established to protect small investors from the consequences of a
member's default. The fund is operated under a set of Regulations.

Market Surveillance:

The advent of the Automated Trading System has enhanced the market surveillance capability of KSE to devise a
market control system. An independent Market Control and Surveillance department has been established to monitor
price fluctuation and trading patterns to ensure compliance with regulations and detection of speculative activities.

Minority Shareholder's Interest:

The Exchange has played a proactive role in safeguarding small shareholders' interest and has strengthened its
monitoring and enforcement capability to ensure corporate governance. During past couple of years a number of
cases have been referred to the SECP in this regard.

Awareness
Started to invest in KSE

section you will learn about how to invest in Karachi Stock Exchange

Authenticity

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he authenticity of your broker, agent and the branch which is carrying out your transaction.

ve Members

of Agents

ulation

ch Offices

celled Agents

Protection

nfidence in the fairness of capital markets is fundamental to the success of markets in capital
he Karachi Stock Exchange, as frontline regulator and SECP, as apex regulator of the capital markets
of means to get the investors protected from market abuse and for this purpose has framed various
gulations.

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First Time Investors

The Basics
Why invest in shares
Why Invest in Shares

Whether its retiring early, saving for the children’s education or paying off the mortgage, everyone has dreams they
can achieve by saving.

Introduction

What are shares?

There are a number of different shares you can buy, including preference shares, bonds, and gilts but the most
popular type is the ordinary share. Ordinary shares simply represent ownership of a company.
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So, when you buy shares, also known as equities or stocks, you literally become a part-owner of that business. If, for
example, a ABC Plc has 100,000 shares worth Rs. 1 each and you buy Rs. 1,000 of shares, you own 1% of the
company.

Companies do not have to list on the stock market to issue shares. Many businesses start life with friends and family
as shareholders. These businesses are called unlisted firms and their shares are often referred to as ‘unquoted’.

There are more than 654 companies listed on the KSE market, from big international brands such as P&G, SCB and
etc to national household names such as OGDC, MCB, PSO and NBP.

As a shareholder you have a say in the company’s affairs by voting at company meetings and, of course, the ability
to share in its fortunes. If the company does well, the value of your investment should rise but if it does badly, you
could see your shares fall in value.

What are the benefits of share ownership?

There are two ways you can benefit from owning shares. The first way is through the growth of the company. Say,
for example, ABC Plc earns revenue of Rs.100,000 in one year. After deducting its costs, it has Rs.50,000 left – its
profit.

It then reinvests this money in the business, perhaps by investing in better technology, which enables it to cut costs
and, therefore, make a bigger profit the following year. If it can continue to improve its profits, demand for its shares
will grow and the share price will rise. This type of company, known as a growth stock, is popular with investors who
do not need income from their investments.

Many companies also pay a dividend. Say, for example, XYZ Plc earns revenue of Rs.1,000,000. After deducting its
costs and reinvesting in the business it has Rs.100,000 left over. It decides to return this money to shareholders by
paying a dividend. If the company has 10,000 shareholders, each share will get a dividend of Rs.10 per share. So, if
you own 100 shares, your total dividend will be Rs.1,000.

Shares that pay dividends are generally known as ‘Income’ stocks. Companies can return money to shareholders in
other ways too such as buying back their shares. This increases the value of those shares still in circulation.

By investing in shares you are also linking your financial wealth to the health of the Pakistan and overseas
economies. The proportion of goods and services sold in the Pakistan and abroad typically rises when economies are
growing and falls when in recession, thus affecting profits.

The fact economies spend longer in a growth period than in recession has helped shares produce better returns than
other assets and, crucially, beat the effects of inflation. If you left Rs.10,000 under your mattress, for example, it
would be worth just Rs.9,750 a year later, assuming inflation had increased the cost of goods and services by 2.5%
that year. After five years it would have fallen to just Rs.8,810.

Savings accounts do little to protect your money from inflation as your real rate of return is small, averaging 1.8% a
year after inflation according to Credit Suisse First Boston’s Equity Gilt Study 2003. Shares, on the other hand, do
have the ability to produce better gains. But, as investors it needs to be understood that share ownership is not
without its risks.

The risks of investing

Inflation may eat away at your savings over the long term but if share prices fall, you run the risk of losing money. If
a company you invest in goes bankrupt, your shares could become worthless.

But companies do not have to go under for you to lose money. Other investors may simply decide that the company
is not worth as much as when you paid for it, perhaps because it is losing market share, and if enough of them think
that, your investment will fall in value. Shares also tend to fall when the economy is deteriorating as investors
recognize profits will be lower.

These are not, however, reasons for you to stay out of the stock market. But they should help you recognize the
importance of building a broad portfolio with shares in different companies, industries and, even, countries. A good
way for a beginner to do this is to invest in a fund, which spreads your money across 30-100 companies.

It is also worth noting that apart from those companies that go bust, shares that have fallen in value can recover in
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time. Sometimes if a share has fallen in value it can be worth holding on until it recovers but at other times it may be
better to cut your losses and invest in a company that has better prospects. The option you choose will depend on
the company you are invested in and your individual circumstances. Read more about How to build a portfolio and
reducing investment risk.
Investing in bonds
Investing in Bonds

If you are looking for income from your investments or want to build a balanced portfolio, bonds may be an area
worth considering.

Bonds are effectively IOUs. You lend a company or government money for a set period in return for a fixed income,
known as the coupon. This set income means bonds are often called ‘fixed interest’ investments. When the bond
matures, you should get your original investment back.

Bonds are not designed to produce capital growth, although they can generate a little, so these investments are not
really suitable for investors seeking high returns. But they do provide investors with greater protection than shares as
bondholders are above shareholders in the pecking order if the company goes bust.

This gives them great value as ‘safe haven’ investments during economic downturns and the income they pay makes
them very attractive to people looking for income from their investments.

How bonds work


What influences bond prices
Different types of bonds
Buying bonds

How bonds work

Very few investors hold bonds until maturity and instead trade them like shares. So, although they have a fixed price
when they are issued, demand from investors can push the price above and below this level. This effectively
increases or decreases the income you earn.

Bonds are issued in bundles of Rs.100 so if, for example, a company agrees to pay bondholders a set amount of
Rs.10, the yield is 10%. If the bond is then traded in the open market and is sold for Rs.110, the income is still Rs.10
but the yield has dropped to 9%. If, however, demand for the bond is low and the price falls to Rs.90, the yield rises
to 11%

What influences bond prices

Bond prices are influenced by the yield they pay and the rate of interest investors can earn elsewhere. If interest
rates are high, savings accounts will pay more and bonds, therefore, become less attractive.

But this does not mean it is easy to decide when to buy and sell. Bonds are traded by professional investors who try
to second-guess future demand for bonds by monitoring economic conditions and anticipating interest rises and falls.
This makes them a good barometer of what experts think will happen to the economy. If bond prices rise, experts
believe economic conditions are deteriorating and if they fall, it usually means the economy is improving.

Bond prices are also influenced by the strength of the individual company - if the company is weak it is more likely to
default on its interest payments. The strength of companies issuing bonds is monitored by agencies and they give
bonds ratings with AAA being the highest and C being the lowest. If a company’s rating changes, it will usually have
an impact on its bond price.

Different types of bonds

There are a number of different types of bonds and demand for each type is different depending on market
conditions.

Many bonds are issued by governments and are known as ‘sovereign’ debt. These bonds are usually rated more
highly than bonds issued by companies. This is simply because governments are less likely to default on their debt
than companies.

Government bonds are often given different names – UK government bonds are known as ‘Gilts’, German

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government bonds are called ‘Bunds’, while US government bonds are known as ‘Treasuries’ and Pakistani
government bonds are known as ‘PIBs’

Corporate bonds are issued by companies but they are split into different types depending on the credit rating they
achieve. Companies that have high ratings are known as investment grade bonds while companies with low ratings
are known as high yield bonds because they have to promise higher income payouts to attract investors. Companies
that do not achieve ratings are known as ‘junk’ bonds.

Companies also issue different types of bonds. Debenture stocks, for example, are secured against specific company
assets while unsecured loan stocks pay higher yields but are not secured against the company’s assets. Companies
also issue convertible bonds that give holders the right to convert them into shares under certain circumstances.

Buying bonds

You can buy ‘PIBs’ simply through the State of Pakistan. Corporate bonds can only be bought through a stockbroker.

If you don’t want to buy bonds directly, you can choose from a variety of bond funds run by investment companies.
These funds pool your money with those of other investors and invest in a number of bonds. A professional money
manager is appointed to manage the fund, for which you pay a fee.

You can buy bond funds investing in different types of bonds, including investment grade, high yield and overseas
bonds. Some funds also specialize in investing in emerging market bonds.
Investing in funds
Investing in Funds

While investing in the stock market makes sense, buying shares can be daunting, particularly if you are new to
investing.

You cannot, after all, go and buy shares in just any company and expect them to go up in value. You need to do
thorough research first to understand what moves share prices and where there are opportunities to make money.

Learning about the stock market and successful investing takes, like anything else, time. Even when you feel you
understand enough, there is no guarantee you will make money – even the most experienced tipsters can get it
wrong. And, if you only have a small sum to invest, taking a chance with your hard-earned cash may be more of a
risk than you are prepared to take.

This is why most investors entrust at least some of their money to professional money managers who buy shares for
them through investment funds (Mutual Funds). Even if you do want to invest money yourself, it makes sense to
have at least some money in a fund as they can provide a whole host of benefits you are unlikely to achieve
investing on your own.

Investment trusts
Unit trusts

Investment trusts

Investment funds work by pooling your cash with that of other investors and investing it in a broad range of shares.
The benefit of this is not only having your money managed by an expert but that you gain access to a wider range of
shares than you could buy yourself.

If you were to buy shares yourself it is unlikely you could afford to invest in a very diverse portfolio. Most experts say
that you should look to invest in at least 10 companies to get a decent level of diversification and put around
Rs.1,000 in each. But if you invest in a fund it doesn’t really matter if you invest Rs.5,000 or Rs.10,000 a month.
Your money will be spread across a wide range of companies, typically at least 30.

This is a far less risky approach to investing – if the shares of one or two of the companies you are investing in drop
in value, the increase in share prices of other stocks should mean your investment will continue to grow.

Buying an investment fund does not only give you diversification across a range of companies but can also give you
exposure to stock markets around the world. At times fund groups offer funds (Depending on the nature of the fund)
that invest not only in the Pakistan but Europe, the US, Asia and other emerging markets.

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Some groups also offer more esoteric funds focusing on specific industries, such as technology and healthcare or
even money markets.

But while the fund managers running these investments are professionals, there is no guarantee you will make
strong returns. Fund managers can go through periods of poor performance and some are better than others so you
need to choose your investment carefully.

Before you go and buy a fund, you need to decide which type you want. Each spreads your money across a range of
investments but there are some important differences in the way they work and how they perform.

Unit trusts

If you put money in a unit trust you buy units in a fund. The price of these units is determined by the value of the
assets it holds. Every time a new investor puts money in the fund, more units are created by the manager with a
value equal to those already in existence.

When units are sold, the reverse happens – if the fund manager cannot find a buyer for the unwanted units, they are
cancelled. This means that the unit trust’s size is not restricted and so it is often referred to as an ‘open-ended’ fund.
If you look for the price of a unit trust in a national newspaper or magazine, you will see they have one price for
investors who buy units, known as the buy or offer price, and a different price for investors who sell, known as the
sell or bid price. You will notice that the offer price is always higher than the bid price.

This difference, known as the bid-offer spread exists to take account of the fund managers’ charges and
commissions.
Investing in other stock market instruments

Investing in other Stock Market Instruments

Buying shares or funds aren’t the only way of getting exposure to the stock market. Over the past few years a whole host of different stock
give investors access to a completely different way

Some of these investments, such as Exchange Traded Funds provide cheap ways for novice investors to get access to the moves in a specific
betting and Contracts for Difference, can give you the ability to make money when share prices fall and, perhaps, double up your

This does, however, make some of these investments more suitable for experienced investors so you should tread carefully and make sure you

Exchange Traded

Exchange Traded Funds (ETFs) work like index tracker funds, giving you access to the performance of specific indices such as the KSE 100 o
funds, ETFs are set up as companies and rather than using computer modeling to track an index

While there should be very little difference between the performance of index tracker funds and ETFs, being set up as companies gives ETFs
day like ordinary shares. Index trackers can only be bought and sold at a price

The annual fees on ETFs are similar to tracker funds, but you will also have to pay stockbrokers’ commission

How to buy shares and other securities


Investing in other Stock Market Instruments

Successful investing is not just a matter of picking the right investments at the right time but finding the best, and
most cost effective way of buying them.

 Buying shares
 Trading in overseas stocks
 Buying funds
 Buying bonds
 Buying other investments

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Buying shares

Investing in the stock market is as far removed from the image of the dapper city gent in his bowler hat as you can
get. These days you can trade shares through your bank, over the phone or the internet.

The first thing you need to do is decide what type of broker you want. If you want help with your investments you
might be best suited to a full advisory service, where the broker will look at your individual circumstances and devise
a strategy specifically to suit your needs, monitor your investments and make suggestions on buying and selling
shares. Some may even buy and sell shares for you without asking for your approval first. This service, known as
discretionary broking, is highly tailored and, unsurprisingly, can prove expensive.

These days most people are prepared to do their own research, which, after all, half the fun of investing. If you are
in this camp you need to look for an execution only stockbroker.

Execution only means that the broker will simply take your order and execute it for you. These brokers cannot legally
offer you any advice on your decisions and to keep costs down usually operate over the phone or the internet.

This does not, however, mean they will not provide you with any tools to help you make the best investment
decisions. Many execution only brokers, particularly the larger firms, offer all kinds of research and online tools for
everyone from the novice to the real expert.

To a large degree, finding the right broker for you will depend on your individual requirements but there are four
factors you should look for: quality of information, speed of execution, markets available and cost. Generally
speaking, the better the information on offer, the more you will pay.

While telephone and internet services may give you access to instant dealing, completing your deal takes a little
longer. By law all share deals have to be ‘settled’ two days from when they were struck, often known in the trade as
T+2.

Deals can be settled so quickly because shares can now be held electronically rather than in paper form.

Buying funds

The main routes open to investors wanting to buy funds are: directly, through an independent financial adviser (IFA)
or through a fund mutual fund company or distributor.

If you want some help picking your investments, you should choose an independent financial adviser who will
research the entire market and look at your individual circumstance before recommending funds. Some advisers will
charge a fee for this advice, others will take commission from the fund group.

Buying bonds

You can buy government issued bonds, known as ‘PIBs’ simply through the commercial banks or a stockbroker.
Corporate bonds can only be bought through a stockbroker.

Buying other investments

If you are a more adventurous investor, you might want to buy other stock market- related investments, such as
Exchange Traded Funds (ETFs) or derivative products you should be able to buy them through a stockbroker. The
costs of trading should be similar to what you pay for trading ordinary shares.

Hrs the mafgets srfg


What are the different markets?
Who does what in the market?
Who does what in the market?

When you buy or sell shares in a company your only contact will usually be with your stockbr

But if you read the financial pages of newspapers or the information sent to you by stockbrokers or companies, you will see a whole host
business mentioned, such as market makers, registrars and regulators. Each of these organizations has a different but crucial role in the effi
working of the stock market. So, while you may not actually deal with them day to day, it is worth understanding the role the

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The Karachi Stock Exch


Regulators
Registrars
Stockbrokers
Market ma
Company adv
Shareholders

The Karachi Stock Excha

The Karachi Stock Exchange is the principle Pakistani exchange for investors who want to buy and sell shares or bonds. It is known in regul
circles as a Recognized Investment Exchange, which means it provides a marketplace for inves

Companies who list on one of the Exchange’s markets, have to abide by strict rules governing their listing and may have their shares suspend
they do not com

But the Exchange does not get involved in regulating the advisers and brokers individuals deal with. That is the responsibility of the Sec
Exchange Commission of Paki

Regulators

Regulators are there to protect you and your money. The main regulator in Pakistan is the Security Exchange Commission of Pakistan (SECP)
financial companies whose main business is investment must be authorized by the SECP. That includes stockbrokers and independent fina
advisers. These firms are required to ensure all the people who w o r k for them meet the standards laid down by the S

Registrars

If a company lists its shares on the stock market it needs to appoint a company registrar. The company registrar is responsible for the upkeep
legal record of the company’s sharehol

This means that every time you buy or sell shares, the registrar will make a record of the transaction. This is useful if you lose the certificate
need to trace your holding. But registrars will not always know you are the owner of shares if you buy through a nominee acco

Nominee accounts, operated by stockbrokers, enable you to buy and sell shares more quickly than if you hold the paper certificate but as the sh
are held under a nominee account, the registrar will only know how many shares are held in that account, not who the individual owners are.
then becomes the responsibility of your stockbr

Stockbrokers

Stockbrokers are the people who will buy and sell your shares on your behalf for a fee. There are different types of stockbr

If you want help with your investments you might be best suited to a full advisory service, where the broker will look at your indiv
circumstances and devise a strategy to suit your needs, monitor your investments and make suggestions on buying and selling shares. Some
even buy and sell shares for you without asking for your approval first. This service is highly tailored and, unsurprisingly, can prove expen

These days most people are prepared to do their own research. That is, after all, half the fun of investing. If you are in this camp you need to
for an execution only stockbroker. These brokers cannot legally offer you any advice on your decisions and to keep costs down usually operate
the phone or the Inte

This does not, however, mean they will not provide you with any tools to help you make the best investment decisions. Many execution
brokers, particularly the larger firms, offer all kinds of research and online tools for everyone from the novice to the real

To a large degree, finding the right broker for you will depend on your individual requirements but there are four factors you should look for: qu
of information, speed of execution, markets available and cost. Generally speaking, the better the information on offer, the more you will

Market ma

When you give an order to buy or sell shares to a stockbroker, they pass the deal onto a market maker who will execute the deal. Market ma
have to offer stockbrokers separate prices for buying and selling shares (known as bid and offer pri

When you see a share price quoted in the newspaper it is usually the mid price (the average of buy and sell prices) and this determines the v
or market capitalization, of a comp
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Market makers are ultimately responsible for how much share prices move up or down. If, for example, demand for a company’s shares is
market makers will put up the price to attract shareholders to sell. If demand is low, the market maker will reduce the price to attract bu

Company adv

If you read about one company taking over another, or that a company has diversified into a new area, you will usually see the reporter na
different firm as the company’s adv

While listed companies have boards of directors who are there to advise the business on any future developments, they usually employ ou
firms to help independently analyze the prospects for the business. These firms, often investment banks, may, for example, do some research
which of the business’s r i v a l s may be ripe for take

Shareholders

If you have bought shares in a company you are a shareholder. Owning shares gives you the right to vote at company meetings and to get
dividends the company pays out. You may also qualify for shareholder perks, such as discounts off the company’s products, although you may
to hold the share certificate directly rather than through a nominee acc

Shareholders are usually split into two types: institutional and private. Institutional holders are companies who may, for example, invest the pen
schemes of their staff in shares. They can also be fund managers who run investment schemes such as unit trusts or investment trusts. So, i
have a pension or another investment scheme, these institutions will be investing on your be

Institutions have the biggest influence on the market’s performance simply because they have millions or billions to invest. If they, for example,
a reasonable percentage of a company’s shares, selling them will have a significant influence on the price.
VVVVVV
Market mechanics
Market Mechanics

Once you have done your homework and decided which companies you feel are worth investing your money in, you
can go ahead and buy their shares.

This is a simple process but there are some tips worth knowing before you start. Your first step should be to find a
stock broker who offers the kind of services you need. Read more about choosing a broker.

Once you have registered you need to decide what type of order you want to place. There are a variety of ways you
can buy or sell shares, not just at the best price your broker can get. You can, for example, set limits on the prices
between which you are happy for your broker to trade. Remember that not all brokers will offer every type of order
so check with them when you register.

At Best
Limit orders
Stop order
Fill and Kill orders
Trading systems

At Best

At best orders are used by the vast majority of private investors. If you choose to buy or sell shares at best you are
simply instructing your broker to trade immediately at the best price they can get.

Limit orders

If you place a limit order you are simply asking your stockbroker to buy or sell shares at a price that matches or
betters the level you specify. You might, for example, have noticed that shares in XYZ Plc have fallen to Rs.3.5 in the
past few days and you think they are worth buying at Rs.3.5. You could, therefore, ask your broker to buy the
company’s shares if they fall below this level.

There is no restriction on when these orders can be placed and then can stay in force for anything up to 90 days.
This would be useful if, for example, you were going away on holiday but didn’t want to miss out on buying shares at
a specific price.

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Stop orders

This type of order enables you to buy or sell shares within a specified range once a price you determine has been
reached and is a type of limit order. If, for example, you decide you want to buy shares at a specific level above the
current market price you can ask your broker to place a contingent stop buy order. If you want to sell your shares
once the price has dropped below a pre-determined level you can place a contingent stop sell order. This type of
order can be useful if, for example, you are a momentum trader and want to reduce your exposure to a stock as
prices fall or increase your holding as prices rise. Read more about momentum trading in strategies for investment.

Fill and Kill orders

If you want to buy or sell shares at a price that matches or betters the level you specify when the market next
opens, you can place a fill or kill order. Your order with either be ‘filled’ if your broker gets a price matching your
requirements or ‘killed’ if the price cannot be matched at the first attempt.

You can only place fill and kill orders outside market hours. These orders expire when the market opens on the first
business day after the order has been taken. So, if you place a fill or kill order on a Tuesday evening, the order will
be filled or killed at the start of the next day’s trading.
How companies raise money
How companies raise money

Some 30 companies have decided to list their shares on the Karachi Stock Exchange. But why? What do they get out
of it? There are, after all, tremendous costs involved in gaining a stock market listing and maintaining it.

Quite simply, listing on the stock market is all about raising money to enable your business to expand. Imagine you
have a brilliant idea for a new company but you don’t have the money necessary to buy equipment such as
computers and office furniture. You might initially think about raising some money from family and friends and giving
them a stake in your business in return. This is, in fact, the way many companies start life. Shares issued by
companies not listed on the stock exchange are often referred to as ‘unquoted’.

But if you need money on a large scale or you are a small business looking to expand, you might need more than
your close acquaintances can provide. At this stage some people look to borrow money from venture capitalists or
the bank. Others decide to try and raise money from a wider group of investors through a stock market listing. These
shares are known as ‘quoted’ or ‘listed’ on the stock exchange.

It is rare, however, that companies approach the market just once for money. As you flick through the financial
pages of your newspaper you will often read about rights issues, share splits and share buy backs. These are all
terms used to describe different ways companies raise money from investors and, pay it back.

IPOs/new issues
Bond issues
Rights issues
Stock splits and scrip issues
Share buybacks

IPOs/new issues

Raising money by issuing shares is a viable option for a company because investors have to rely on the company’s
performance in the future to get their money back. If the company borrowed money from the bank instead they
would have to make interest repayments on set dates.

A company that decides to raise money by issuing shares is said to be ‘floating’ on the stock market but this option is
not open to all companies. It has to seek approval from various regulators and banks before asking the public for
money. It also has to issue a prospectus, which explains what the company does why it is raising money and what
opportunities and risks there are to investors from buying shares in the firm.

When you buy shares through an IPO you are buying them on what is known as the primary market. New issues of
shares are distributed through a broker appointed by the company and are sold at a fixed price. Investors sometimes
buy shares in a new issue hoping to sell them immediately at a profit rather than hold them. These investors are
known as ‘stags’.

Once the new issue is completed and the company is officially listed on the stock market, it is known as a public

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limited company (plc) and shares can be traded between investors. This is known as the secondary market. Shares
sold on the secondary market trade for whatever someone is willing to pay for them. The more valuable a company
is perceived to be, the more investors are prepared to pay for it and vice versa.

Bond issues

If a company does not want to issue shares, it can issue bonds instead. Bonds are different to equities because
rather than investors having to rely on the company’s returns to make money, the company pays a fixed sum back to
investors every year. It also promises to repay the full amount it borrowed after a set number of years.

This way of raising money is called issuing debt as the company is effectively borrowing money from you.

Rights issues

A public limited company is free to go back to the market whenever it pleases to ask for more money. This is known
as a rights issue. You are not, however, under any obligation to take up its offer.

Companies decide to raise more money for a variety of reasons but usually it is to fund expansion, perhaps to take
over a rival or to diversify into a new business area. Rights issues are almost always offered to existing investors and
the amount they are offered depends on how many shares they already own. They could, for example decide to
issue two new shares for every one held.

Shares offered under a rights issue are usually offered at a discount, often between 20% and 40% of the current
share price. Existing shareholders receive a Provisional Allotment Letter which tells them how many shares they are
entitled to and what the price will be.

If you receive this letter you can either take up the offer or decide to sell the letter onto another person who can
subscribe for the shares instead. This is known as ‘rights nil paid’. Another option is to do nothing. If you do this the
company will sell the shares in the market, retain the subscription price and remit any excess proceeds from the sale
to you.

You should remember that once a company has issued extra shares, you own a smaller proportion of it and so your
shares should be worth a little less. How much less will depend on how much other investors are prepared to pay for
them.

Companies can also issue new shares through a placing. This is when new shares are created and sold through the
company’s financial adviser, usually at a price just below the price of the existing shares.

Stock splits and scrip issues

Companies can decide at any time to increase the number of shares they have in issue by doing a ‘stock split’. This
often happens when a company decides its share price has got too high and is concerned that trading will decline as
a result. If a stock splits and, for example, give you two shares for every one you own, there is no real change in the
value of your holding, even though you own more shares.

Another way for companies to issue more shares is through a ‘scrip issue’. This happens when a company decides to
turn part of the reserves it has accumulated into new shares. These shares are usually issued to existing holders but
are not, as many people mistake them, free shares. The company is simply moving its money from one part of the
balance sheet to another.

Share buybacks and special dividends

Companies have to have a certain amount of money in reserve to protect the business if, for example, profits were to
collapse. If the company has done very well for a number of years it can build up excess reserves. It may decide to
use this money to fund an acquisition or may pay a special dividend to investors.

Alternatively, it might choose to buy back some of its own shares. When a company buys back its own shares it
makes the shares still in issue more valuable. Say, for example, a company has 100 shares worth Rs.100 each and
you have five shares, you own 5% of the company. If it buys back and cancels 20 of those shares, you still own five
but your stake in the company has increased to 6.25%.

How you are protected

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How you are protected

While all of us hope that investing will improve our wealth, we have to accept that investing does involve some kind
of risk.

As investors who suffered losses during the bear market of 2005 to 2008 will testify, there is always a risk that
shares will simply fall in value, no matter how much research you have done. Unfortunately for investors who have
lost money simply because of a fall in the stock market, there is no way to gain recompense if you have decided to
invest of your own free will.

But investors do run the risk of losing money through no fault of their own. There is, for example, the risk of losing
money because your stock broker has run off with your money. Or perhaps you have been encouraged to invest in a
product that proved unsuitable for your needs.

All advisers and brokers have responsibilities when dealing with consumers and you should understand what to look
for in a company before you hand over your money. You should also know what to do if something does go
wrong. You should also understand what your responsibilities are as an investor.

Your rights and responsibilities


Who is responsible for what?
What to do when things go wrong

Your rights and responsibilities

Before you take investment advice from anyone or hand over any money you should check the person you are
dealing with is authorized to conduct investment business.

All firms who conduct investment business and who deal with the public, whether they are mutual funds, investment
companies, stockbrokers or independent advisers, must be authorized by the Pakistan’s regulator, the Security
Exchange Commission of Pakistan (SECP). These firms have to prove to the SECP that they are competent, financially
sound and treat their customers fairly. If you have received any advice, the firm must make sure that any
recommendations are suitable for you.

However, you are only protected by the KSE’s complaints and compensation schemes known as the investor
protection fund, if you deal with authorized firms so check carefully that the firm or individual you are dealing with is
authorized by the SECP to conduct investment business before you hand over any money.

As an investor you do have to accept some responsibility as well. You should never invest any money in any share or
financial scheme without understanding exactly what you are getting into. Make sure you read any literature you are
given too. It may look boring but remember that you may end up putting your money at risk if you are not careful.

Another responsibility you have is to make sure you do not profit from any inside information. You might think you
would never find out any inside information but it can be as easy as overhearing a conversation on a train or in a
pub. If you find out any information not generally available to the public and use it to make a profit, it is insider
trading and is illegal.

Who is responsible for what?

There are a whole host of organizations responsible for making sure that financial companies follow strict rules
designed to protect investors.

The main organization responsible for the regulation of Pakistan’s financial companies is the SECP and State Bank of
Pakistan (SBP). Any financial companies whose main business is investment must be authorized by the SECP or SBP.
That includes stockbrokers, independent financial advisers, mutual funds, investment companies and banks. These
firms are required to ensure all the people who work for them meet the standards laid down by these authorities.

What to do when things go wrong

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Although the whole system of regulation in the Pakistan is designed to ensure financial services firms carry out their
business responsibly sometimes things can go wrong.

If you think, for example, that a firm has given you misleading advice there is a chance that you may be able to get
all or part of your original investment back. Your first step should always be to contact the firm that sold you the
product or provided the service. If you are not satisfied, you should then take your complaint to the regulator.

Experienced Investors

Within this section you will find educational resources for investors that give you the power to make
informed decisions.

What factors influence share price

What factors influence share price

When you look at the performance of the stock market at the end of a trading day it can be hard to work out why shares
have either risen or fallen in value. Broadly speaking, share prices are influenced by news or information: new data on
employment, manufacturing, directors’ dealings, political events or even the weather, all kinds of news can influence the
way shares move.

You will sometimes, however, see little move in share prices when, for example, interest rates shift. This is because
investors try to anticipate what is going to happen in the next few months and try to move their portfolios in or out of these
stocks before the rest of the market catches on. Sometimes, of course, these expectations can be wrong and if this happen,
markets can move very sharply.

If you want to trade successfully in the stock market you will need to know what news other investors look at and how they
will look at it. This will help you pick the best moment to buy and sell your shares

 The economy
 Company news
 Analysts reports
 Press recommendations
 Sentiment
 Technical influences

The Economy

The health of the global economy has a fundamental influence on share prices because it is ultimately responsible for
driving company profits. Broadly speaking, if the economy is growing, company profits improve and shares will become
more highly valued. If the economy is weakening, company profits will fall and share prices will go down.

Investors look at a vast amount of data to try and work out what is going to happen to the economy and shift their
portfolios before the events occur. This is why you will often see markets move well ahead of an actual event occurring. You
may, for example, get little reaction from the stock market when interest rates rise. This is because investors have already
anticipated the shift months in advance and adjusted their portfolios beforehand.

You can usually assume that the stock market will anticipate moves in the economy by around six to nine months. So if you
want to stay ahead of the game you will need to follow economic data as closely as the professionals.

The kind of information you need to play close attention to is: employment data, the reports put out by the Finance Ministry

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and State Bank of Pakistan (to get an idea where interest rates, inflation and GDP are headed), trade with other countries,
retail sales and manufacturing. Sentiment surveys produced independent research houses are also important indicators of
where the economy is heading.

It is not only news about the Pakistani economy that will impact on share prices. The signals coming out of other major
economies, particularly Pakistan’s major trading partners United States, Hong Kong, Germany, United Kingdom, Japan,
United Arab Emirates and so on will affect Pakistani shares as what happens in these economies will have an impact on our
own.

When looking at economic data, you need to think not only how the wider economy will be affected but whether certain
areas will be more affected than others. A rise in interest rates is, for example, often bad news for house builders as people
feel less confident about taking on debt. Retailers are often badly affected too as people spend less. Pharmaceutical
companies are, however, usually unaffected as people’s demand for drugs is not influenced by the state of the economy.

Companies whose profits are closely tied to the health of the economy are known as ‘cyclical’ stocks. Those businesses that
aren’t too affected by the economy are called ‘defensive’ stocks. If economic conditions deteriorate you will often see
investors shift from cyclical stocks to defensives

Company news

The way investors interpret news coming out of companies is also a major influence on share prices. If, for example, a
company puts out a warning that business conditions are tough, shares will often drop in value. If, however, a director buys
shares in the firm, it may be a signal that the company’s prospects are improving.

Companies put out a great deal of news and most of the major announcements are covered by the financial press. But
some announcements not regarded as so important and sometimes, particularly among smaller firms that are monitored
less by investors and financial journalists, indicators of the company’s health can be missed.

You can stay one step ahead of the game by looking carefully at all the information sent out by companies you own, their
competitors and other companies you are interested in. This information is usually available on companies’ websites and the
annual and quarterly reports published by the companies them selves.

Try to think laterally about the information you are getting. If, for example, a competitor to a company you have shares in
produces a revolutionary new product, it will probably hit profits at the company you own. Also think about the impact it will
have on suppliers to that business. An increase in sales of mobile phones with cameras in them will not only be good for the
phone company but the firms that supply the technology in the phones.

Takeovers or even rumors of takeovers also have a big influence on prices. This is because investors expect the bidder to
pay a premium to shareholders.

Understanding companies' accounts

Monitoring news on a company

Monitoring news on a company

To decide when to buy and sell investments you need to monitor news on companies, the markets and the economy. But
where are the best places to go for this information?
The proliferation of the media over the past decade has meant private investors now have access to the same information
as the professionals, at the same time. This has enabled private investors to react more quickly to news announcements
and even encouraged some to give up their day jobs and trade shares every day, known as day trading.

The amount of information available on the stock market, whether through newspapers, magazines or the internet, is
enormous. But unfortunately not all of it is reliable so you must tread carefully.

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 Newspapers and magazines


 The internet
 Television
 Stockbrokers and investment banks

Newspapers and magazines

Newspapers and magazines are the traditional source of information on companies. Most national newspapers have City and
business sections that cover the main business stories and stock market reports.

There is a difference between the content of daily newspapers and the Sunday papers. During the week newspapers tend to
focus on major company announcements, such as mergers and annual results, and takeover rumours.

The Sunday newspapers however, do not have this option as companies do not make any announcements on Saturdays.
Instead these papers focus more on analysing the previous week’s news and getting exclusives stories that will dominate
the week ahead. They also often publish share tips which can influence the next day’s trading.

The money or personal finance sections of newspapers cover a wide variety of subjects, including mortgages, loans and
investments. They usually carry some advice on which shares, funds and stock markets the professionals are favoring.

A number of magazines are also available covering shares, funds and other investments. You can expect to find detailed
analysis of companies, stock markets and other investments such as unit trusts and investment trusts.

If you are interested in a particular sector of the stock market it may also be worth subscribing to a specialist magazine
covering that industry. These publications, known as trade papers, are not usually available in newsagents but are
subscription-only so you may need to hunt around to find them.

The internet

The emergence of the internet has revolutionized the world of financial reporting. Rather than waiting until the next day to
get news on the latest events affecting investors, you can get it minutes after it has happened.

A number of websites focus on producing regular stock market reports and company stories throughout the day. You can
also get detailed news on what investments the professionals have been making. On these web site you can get the full
regulatory news service, an editorial news service and further news from different economist and fund managers.

In addition to news, many websites offer tools that allow investors to monitor the value of their portfolios and analyze the
performance of individual stocks and funds. Some of this information is free but if you want more detailed information, you
will usually have to pay a subscription.

A number of websites also publish regulatory news. These are official announcements companies are required to make on
any events that can influence the value of their shares. Many of these news stories are published before the market opens.

The internet has also improved the information you can get from companies themselves. Most companies have websites
that publish the latest news announcements, some of which you may not pick up elsewhere.

Before you use any website make sure you check its credentials. While there are many excellent financial websites, there is
nothing to stop any individual setting up a webpage and publishing any information, whether reliable or not. Most reputable
websites will have information on who they are and you will find many are owned by major publishers or stockbrokers.

Television

Mainstream news programmers tend to cover only a small amount of business news, normally reporting on the performance
of major stock markets around the world and announcements by major companies, such as redundancies or mergers. There
are, however, a number of specialist programmers to watch out for, on various business and news channels that are
available on any cable TV network.

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If you have cable or digital television you can find more in depth financial news through specialist channels such as CNBC
and Business Plus. These channels cover a wide spectrum of financial news and can often be more technical than the
mainstream channels as they are typically watched by professional investors.

Stockbrokers and investment banks

Stockbrokers and investment banks produce a vast amount of research of companies, stock markets and economics.

Traditionally private investors have only been able to get information put out by their stock brokers, leaving the world of
investment banking analysis available only to the professional. However in recent years these boundaries have blurred.
Many newspapers and magazines publish summaries of investment banks’ research and some investment banks actually
make their reports available for free on the internet.

You should remember that the recommendation an analyst puts on a company will affect its share price very quickly and
can become irrelevant within hours. This is because the analyst will usually say a stock is a ‘buy’ within a particular price
range. If the price moves above their targets the improvements the analyst expects may be ‘priced in’ and so the shares not
worth buying.

But analysts’ reports are always worth reading, even if the recommendation is out of date. The reports usually contain a
great deal of useful information on the company and how its business is developing. They also often look at how the
company rates against its competitors.

Investment ratios

Investment Ratios

When you read newspaper reports about companies you will come across a wide variety of financial ratios. These measures,
such as the price-earnings ratio, discounted cash flow and dividend cover, can seem complicated to those new to stock
market investing.

But you will need to get a grasp of what the main ratios mean if you are to make the right investment decisions. This is
because looking at how these different ratios compare from one company to another is an important way of judging
whether their shares are good value or not and whether their share price will rise or fall.

There are a wide variety of ratios used by investors but here we have focused on the main ones you should use to sift out
the best performing companies.. You can find all the figures you need to work out these ratios from the company’s annual
report and accounts or if you don’t want to go to that trouble or your maths isn’t very good, you can usually find them on
financial news and analysts’ websites. Read more about company accounts.

 Earnings per share (EPS)


 Price Earnings ratio(P/E)
 PEG ratio

Return on Capital

 EBITDA and EV
 Current ratio and quick ratio
 Dividend cover
 Discounted cash flow

Earnings per share (EPS)

The Earnings per share ratio, often shortened to EPS, measures the earnings a company makes for each share in existence.

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It is calculated by taking a company’s net earnings and dividing them by the number of shares in issue.

A higher EPS is regarded as better than a low EPS as it means investors are earning bigger profits for every share they own.
Investors look not only at the current EPS but at estimates of future EPS to get an idea of the profits they will earn in future
years.

Price Earnings ratio (P/E)

The ratio you will see mentioned more than any other is the Price Earnings Ratio, which you will often see represented as
PER or P/E.

The P/E measures whether a company is cheap or expensive. It is calculated by dividing a company’s share price by its
earnings per share (profits after tax divided by the number of shares in issue). As a rule, the higher the P/E, the faster its
earnings are growing but if the P/E is high compared with other companies in the same sector, it could also mean the
shares are overvalued.

This ratio enables any business to be compared with another, although in reality investors tend to compare companies
against those in the same industry sector or against the P/E on the entire market.

Investors look not only at P/Es based on the past year’s earnings but also at estimates of future P/Es, also known as
prospective P/Es. This gives investors an idea as to how fast a company’s earnings are expected to grow in the future and,
therefore, whether their shares are worth buying or not.

PEG ratio

If you are investing in growth companies it is worth looking at a company’s PEG ratio. This ratio, which shows a company’s
P/E relative to its earnings growth rate, is worked out by taking the prospective P/E ratio and dividing this number by the
prospective EPS growth. The lower the PEG ratio, the better value a company’s shares are.

Return on capital

This ratio helps investors assess how hard a company is making its assets work. It is calculated by taking profits before
interest and tax are removed and dividing this figure by the capital employed. Broadly speaking, the higher the return on
capital, the more successful a company is.

EBITDA and EV

EBITDA is a profit key ratio that looks at the Earnings Before Interest, Tax, Depreciation and Amortisation. It is used to
assess the operative profitability of a company. You can use this ratio to analyse companies that reinvest heavily in their
businesses by taking the Enterprise Value and dividing it by EBITDA.

Current ratio and quick ratio

As well as checking profitability ratios you need to look at a company’s liquidity. One of the key ratios used for doing this is
the current ratio. This takes the current assets and divides it by the firm’s current liabilities.

You should also look at the quick ratio, also known as the ‘acid test’. It is known as the quick ratio because it gives you a
quick grasp of a company’s true liquidity. You work it out by taking the current assets and deducting stock and work in
progress and then dividing this figure by the current liabilities. As a rule this ratio should be over 1 so that if a company’s
stocks were worthless it could still pay off its short term debts.

Dividend cover

If you are investing in a company that pays dividends, you need to understand a company’s dividend cover. This ratio tells
you if a company will be able to pay its dividend. It is worked out by looking at the margin by which the dividends paid to
shareholders are exceeded by the company’s earnings per share. Companies, and investors, like there to be a margin of at
least 1 so the dividend payout will not be affected by a short term fall in profits.

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Discounted cash flow

The discounted cash flow evaluates the future net cash flows and discounts them to their present day value. This ratio has
become increasingly popular among investors since the bear market as it looks at the amount of cash available on a
company’s balance sheet. The more cash a company has available, the better it is able to protect itself through difficult
economic times.

Following indices

Following Indices

If you watch the TV news you will see newsreaders talk about the performance of the Pakistani stock market by referring to
the KSE 100™, KSE 30™ , KMI 30™ or the KSE All-Share indices™. They may also discuss overseas indices such as the US
Dow Jones Industrial Average™, the S&P500™, FTSE 100™ or the Japanese Nikkei 225™.

If you already follow the business news you may know that these indices measure the movement of share prices within the
stock market. But what is the importance of these indices, which are the major indices and why should you pay attention to
them?

 Why indices are important


 The major Pakistani indices
 Overseas indices
 Index trackers and ETFs

Why indices are important

Stock market indices are important because they provide an excellent guide to how profitable companies are and, therefore,
how healthy the economy is. In simple terms, if investors think the economy is growing they will buy shares as companies
are likely to produce better profits. This should result in a rise in a stock market’s index.

If, however, investors believe the economy is going to do badly, they will sell shares as companies are likely to produce
poorer profits. This should result in a fall in a stock market’s index.

In reality, a stock market index will rise or fall day to day depending on the latest economic, political and company news
that has emerged. Employment figures, retail sales, international trade negotiations, conflicts, new legislation, elections and
the forecasts made by major companies can all result in a rise or fall in a stock market’s index.

Stock market indices are also used by investors as a way to measure their own performance. If you invest your money in a
fund such as a unit trust, investment trust or open ended investment company, you will find that the fund manager’s job is
to produce better returns than a particular stock market index which is the benchmark to track the funds performance.

In the Pakistan, the main index used by fund managers to measure their performance is the either KSE 100™ or KSE 30™
and in case of Islamic fund its KMI 30™.

The major Pakistani indices

In Pakistan the main index monitored by investors is the KSE 100™ or KSE 30™. This index, monitors the performance of
the 100 and 30 top traded companies (Respectively) in the Pakistan.

The index’s focus on the biggest and the most liquid Pakistani companies, also known as ‘blue chips’, means it is the one
newsreaders and newspapers refer to when they talk about the performance of the stock market. But the strong returns
made by certain companies within this index means that in recent years it has become heavily dominated by three major
sectors: banks, oils and cement.

KSE All-Share index™ literally measures the performance of all the shares listed on the Karachi Stock Exchange’s main
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market. So it includes the KSE 100™, KSE 30™ and KMI 30™ companies and other medium and smaller companies in a
variety of industries such as media, building and construction and technology, and etc.

Because of the dominance of a few major Pakistani companies, the KSE All-Share™ is still heavily influenced by the
performance of companies in the KSE 100™ and KSE 30™,for example, the KSE 100™ and KSE 30™ together make up the
major percentage of the KSE All-Share™ index by market capitalization.

If you want to get the full picture of what is going on in the Pakistani stock market you need to not only look at the
performance of the KSE All-Share™ and KSE 100™ but also the KSE 30™ index, which covers the major free float
companies in the market.

Overseas indices

Whether you are planning to buy shares listed on overseas markets or not, it is important to be aware of what is happening
to other stock markets around the world.

Arguably the overseas market that investors watch more closely than any other is the US. The American market is regarded
as so important because the US is the biggest economy in the world and is home to many of the world’s largest companies.
So, what happens to the American stock market tends to influence the performance of every other market in the world.

The American index investors will be most familiar with is the American Dow Jones Industrial Average™, which measures
the performance of the top 30 companies in the US. Like the FTSE 100™ in the UK, this index is not regarded as truly
representative of the American economy and so professional investors tend to follow the S&P 500™ index more closely. The
NASDAQ™ index has also become more important to investors as it monitors the performance of the growing technology
industry in the US.

Asian and other emerging market indices are also very important, particularly to Pakistan-based investors, as Pakistani
companies do a large proportion of their business in these markets.

The major international indices investors watch, apart from the US and UK, include the Japanese Nikkei 225™ index, the
Hong Kong Hang Seng™ index, Singapore’s Straits Times™ index and Thailand’s Bangkok SET™.

Index trackers and ETFs

In recent years it has become increasingly common for international investors to put money into schemes that track the
performance of local and overseas indices. These schemes have become popular because they do not rely on the skills of
individual fund managers to produce returns but instead use computers to match the return produced by the index.

More recently the Karachi Stock Exchange is in the process of introducing Exchange Traded Funds (ETFs). These schemes
work like index tracker funds, giving you access to the performance of specific indices such as the KSE 100™ or sectors,
such as technology. But unlike index tracker funds, ETFs are set up as companies and rather than using computer modeling
to track an index, they build portfolios of real shares.

While there should be very little difference between the performance of index tracker funds and ETFs, being set up as
companies gives ETFs a real advantage – they can be traded throughout the day like ordinary shares. Index trackers can
only be bought and sold at a price set at the end of the day. The annual fees on ETFs are similar to tracker funds. But you
will also have to pay stockbrokers’ commission.

Investing in Shares

Investing in Shares

Company shares ('equities') are among world's most popular investments. Equities give investors the opportunity to share in
the success of companies by benefiting from the potential for both income and capital appreciation.

On the markets of the Karachi Stock Exchange investors can buy and sell shares in companies of all sizes active across all
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business areas from across Pakistan. Our high reporting standards help ensure investors are fully informed about the
companies on our markets. The Exchange's unrivalled liquidity (the numbers of buyers and sellers in the market) also helps
by making shares as easy as possible to buy and sell.

This section provides an insight into the different markets and trading platforms at the karachi Stock Exchange. We also
provide information on the different ways you and your broker can buy equities, highlighting the differences between on
and off book trading. Understanding these differences gives investors a better insight into the market mechanics and could
potentially enable them to get a better price when purchasing equities.

Tactics and strategies

How to build a portfolio

How investors categories shares

How to pick funds

Strategies for investment

Managing your portfolio

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