Investors Guide - Sep 2010

Investors’ GuideAcknowledgements

Price: 70/-

Head office

111-C, Jami Commercial Street 11, Phase VII, DHA Karachi

Telephone: 92-21-5311893-6 Fax: 92-21-5388428

Email Address: [email protected]

URL: www.thefinancialdaily.com

Lahore office

24- Peshawar Block, Fortress Stadium, Lahore

Telephone: 92-42-6675595 Fax: 92-42-6664349

Email Address: [email protected]

URL: www.thefinancialdaily.com

Publisher & Editor-in-ChiefAmir A. Ashary

EditorShakil H. Jafri

Executive EditorManzar Naqvi

Assistant EditorMujtaba Baig

Senior Research AnalystAqeel Abdul Razzak

Graphic DesignerAdnan Hussain

Cover Page DesignM. Imran Sharif

2

September 2010ContentsEditorial 4Higher the pledges 6Long road to recovery 8

Flood's effect on mutual funds 11Interview of CEO Al Meezan Investments 12Shutdowns in mutual fund industry 17Flood impact on banks 18Insurance against natural disasters 20Be aggressive for compliance 21Performance of Mutual Funds in July10 22Funds in Focus in July '10 28Performance of KSE100 in July 2010 31World stocks in July '10 32Levy of CGT 33MTS delayed, steam denied 35Shocking facts 36An audacious launch 37Sukuks widely eyed in west 38Commodity Mutual Funds 39Tough measures in hard times 40Social aspect of mutual funds 41Stocks or Real Estate 42May be your are hedging 43Become your own advisor 44Your age and portfolio 45Baseless BoI 46Before you regret 47News 48Social aspect of mutual funds (Urdu) 51Hedging (Urdu) 52Shocking facts (Urdu) 53Become your own advisor (Urdu) 54Is it too late (Urdu) 55Commodity mutual funds (Urdu) 56Stocks or Real Estate (Urdu) 57Your age and portfolio (Urdu) 58Islamic mutual funds (Urdu) 60Beyond consolidation (Urdu) 61KSE in July 2010 (Urdu) 62Mutual Funds in July 10 (Urdu) 63

DisclaimerAll reports and recommendations have been prepared foryour information only. Summary and Analysis are not rec-ommendation to buy or sell. This information should onlybe used by investors who are aware of the risk inherent ininvestments. The facts, information, data, indicators andcharts presented have been obtained from sourcesbelieved to be reliable, but their accuracy and complete-ness cannot be guaranteed. The Financial DailyInternational and its employees are not responsible for anyloss arising from use of these reports and informations.

3

Investors’ GuideEditorial

Record is record

If Governor of Balochistan Mr Aslam Raisani can say that a degree isdegree either it is bogus or genuine then why can't be said that record isrecord either it is negative or positive. Government made a record

recently when it ran its central bank without a full-fledged governor formore than three months that is a maximum length of time under SBP Act towork with an acting governor. Before this, SBP never had an acting gover-nor for such a long time.

After flood devastation now it can be defended that due to heavy engage-ments of government in flood relief activities such an administrative deci-sion does not weigh more importance and status quo is upheld unless thecrisis is over. But it has been only one month since we are facing flashfloods and prior to this situation, two months lapsed and no decision couldbe made in this regard. Does it mean our country is professionally bank-rupt? Absolutely not; if there is any bankruptcy it must be at the decision-making level.

Positively, a summary was submitted by the SBP to the government inthird week of August reminding the president and prime minister to appointthe full-time governor before Sept 1 and the deadline has already passed on.

More surprising is the fact that our economic team successfully acquireda chunk of emergency loan, though not enough to fulfill entire rehabilita-tion needs, from World Bank and International Monetary Fund withouthaving a permanent governor of central bank. Obviously some other guysmight have dominated the entire negotiation process and did not let themultilateral donors to feel the absence of apex bank's chief.

Earlier, it was widely being predicted that acting Governor Mr YaseenAnwer would be regularised for the second top economic post of the coun-try after that of finance minister. However, there are no signs of such moveso far. In a quite recent development the name of veteran economist ShahidKardar was also quoted as possible pick for this job.

It is earnestly seen that an appointment would be made on this post verysoon and the incumbent would be a competent person whosoever he or sheis. Let's hope for the best and pray for the good.

Shakil H. [email protected]

4

News FeatureInvestors’ Guide

HIGHER THE PLEDGES,

FASTER THE RECOVERY Adnan Hussain

Cynicism stands valid to askwhat if country was not facingflood while our economic team

was negotiating with IMF inWashington under the capable leader-ship of Dr Hafeez Sheikh. Would theoutcome have been same as it wasaroused right now? Absolutely not;which means whatever lenient viewsof the donor were earned it was notbecause of negotiation skills of anyczar but it is the unfortunate flood-affected people who indirectly helpedPakistan to take some more time toimplement the reform agenda.Otherwise, our economic managersmight be pleading weak case of eco-nomic reforms with several ifs andbuts.

The IMF Managing DirectorDominique Strauss-Kahn promisedrecently to make $450 million emer-gency assistance to Pakistan thismonth after its approval by the IMFBoard. However, he shrewdly impliedthat the response of donors to theflood devastation also depends on thegovernment's ability to deliver inflood-hit areas. If analysed objective-ly, his words are enough to assess theglobal image of our leaders particular-ly when money matters involve.

"Our dialogue with Pakistan on thecurrent Stand-By Arrangement is pro-gressing and the authorities haveexpressed their intention to imple-ment measures for the completion ofthe fifth review of the programmelater this year. We will stay in closecontact as these efforts proceed.Completion of the fifth review willallow the Fund to disburse an addi-tional $1.7 billion, bringing total IMFdisbursements (including emergencyassistance) to $2.2 billion in the sec-ond half of 2010," Strauss-Kahn said.

Desired breather from IMF has vir-tually been received when directorIMF for the Middle East and CentralAsia Masood Ahmed said that giventhe disaster's impact, some of theparameters of the existing loan

arrangement may need to be changedbecause the economic impact of floodis going to be significant.

The hinted relaxation on existingloan facility was desperately neededby our economic managers because ofpoor implementation mechanism forreforms and now it has also been cou-pled with flood devastation which isenormous enough to convince anycreditor for the deferral of condition-alities.

The IMF and Pakistan also agreedto hold the fifth review of an existing$11.3 billion loan arrangement inOctober and IMF had agreed not toattach new performance criteria orbenchmarks to the loan programmeinitially negotiated in 2008. Under a2008 loan programme with the IMF,Pakistan pledged to implement taxand energy sector reforms, reduceinflation, curb budget deficit and givefull autonomy to the State Bank. TheIMF says it will continue to supportPakistan's economy under the $11.0billion loan program that was initiallyagreed in November 2008.

Finance Minister Dr Hafeez Sheikhtold a joint briefing with the IMFchief at the Fund's headquarters that"Pakistan remains committed to thereform efforts that will put publicfinances on a sustainable basis and laythe foundations for growth." Hestressed the fact that that's really newresources and not recycling of anexisting loan. The new resources aregoing to be disbursed probably in thecoming weeks; probably before theend of September. And it is hoped thatit will be helpful even if, of course, it'snot enough, especially when it will betargeted to actions which have to dowith the most vulnerable part of thepopulation in Pakistan.

A Pakistani delegation, led by DrHafeez Shaikh, met with IMF staffand management in Washington dur-ing the last week of August to discussthe disaster's implications for thecountry's budget and longer-termgrowth targets.

Meanwhile, the President of WorldBank Robert B Zoellick announcedanother $100 million in addition toalready committed $900 million tofinance immediate recovery needsand longer-term reconstruction. Theadditional $100 million, announcedafter Mr Zoellick's meeting with DrHafeez Sheikh, will be made avail-able during the current fiscal year.

"This disaster underscoresPakistan's fiscal vulnerability anddependence on foreign aid. Renewedcommitment to governance and fiscalreforms will be important to mobilisedomestic revenues and ensure thatfunds reach the poor people it isintended for," Mr Zoellick said.

"We need to respond strongly to thecrisis at hand, but we need to do itwithout losing sight of important eco-nomic reforms," said Mr Zoellickwhile emphasising the need to contin-ue the reforms Pakistan negotiatedwith the World Bank Group two yearsago.

In Pakistan business communityexpressed its dismay on recent financ-ing arrangements with

6


multilateral donors for flood reliefand termed them adding to the mis-eries of hapless Pakistanis who wouldhave to ultimately repay this debtthrough taxes and duties. Many busi-ness leaders stressed the need ofgrants and moratorium on huge loansas the exchequer is not in a position topay off loans crossed to over $54 bil-lion over the years.

Businessmen said this is not thetime to further burden the nation withanother loan as Pakistan is not in aapposition to pay off enormous loans,which have already piled up due tohistory's biggest natural catastrophethat has not only displaced over 25million people but incurred monetarylosses to the tune of billions of dol-lars.

However, economists have rejectedthe proposal of seeking any kind ofrelaxation or moratorium from globaldonors because it would eventuallydowngrade country's sovereign ratingwhich may stop Pakistan to approachinternational capital markets to raise

the funds. Secondly, after the floodcrisis is over no one would realise thejustified reason of moratorium but themain action would be rememberedand referred in every such decision infuture. Therefore, experts said thatinstead of seeking any amnesty fromIMF or World Bank it is wiser tomobilise our own resources to takeout country from prevailing crisis.

During negotiation with both IMFand World Bank it was confirmedtime and again that indirectly reserva-tions were expressed on justified dis-tribution and utilisation of interna-tional aid and even IMF chief linkedthe slow global response with lessability of local leadership to cope withflood crisis. This is an eye opener forour leadership especially those direct-ly related to flood relief.

In a press statement some days backPrime Minister Gilani ridiculed thetransparency of aid disbursal throughnon-governmental organisations.However, when global lenders anddonors insisted to dole out aid throughother than official channels then hehad to succumbed to their pressureand recently he hade to announce thateighty per cent aid would be dis-bursed through NGOs while rest byconcerned government departments.

It is indeed a blessing in disguisethat main contributors in flood aid -IMF and World Bank - have beentasked to assess the damages causedby worst natural calamity whichwould desist malice to wrongly por-tray the losses just to mint the inflows.

Meanwhile, our leaders should avoidissuing changing figures of losses likeonce our premier put the economiclosses from deluge at close to $43 bil-lion but the other day in NationalAssembly he revised his estimates to$10 billion. It would reflect our hasteto finalise the losses' count and woulddefinitely send a wrong signal toworld because quantitative analysis oflosses are not made in hurry.

Pakistan has received aid commit-ments of $1014.23 million from vari-ous countries and institutions for theflood-affected people till September 2which means only 10 per cent of totalestimated losses have been coveredthat too by merely pledges while restof 90 per cent would have to be cov-ered through loans and this task isobviously enormous.

The total losses, including those ofinfrastructure, crops, livestock,bridges, communication and privateproperties, are being differently por-trayed by various agencies and gov-ernment but there are no two opinionson the fact that their magnitude isastronomical. It is desperately neededthat government should start recoverysimultaneously by assessing damageson one side and on most crucial sideby rallying maximum financial helpfrom the global community.Thereafter, a well-coordinated phaseof rehabilitation, reconstruction andrecovery may be kicked off. But themost important element of this entireprocess advocates higher the pledges,faster the recovery.

The hinted relaxation

on existing loan

facility was

desperately needed

by our economic

managers because of

poor implementation

mechanism for

reforms and now it

has also been

coupled with flood

devastation which is

enormous enough to

convince any creditor

for the deferral of

conditionalities.

7

OverviewInvestors’ Guide

Impact of flood on economy

Long road to recoveryShiraz Ahmed

One and a half month ago statusquo was the biggest problemfor the political economy

where bad governance, rampant cor-ruption, security concerns and fragilelaw and order situation had alerted thecritics to come out and call upon thegovernment to either rectify the devi-ation from right track or quit thepower. Government was presumingitself the worst victim of criticismsimultaneously by judiciary, mediaand split opposition. The fearsomeissue then was Karachi violence andirksome was the unbridled inflation.

All of a sudden a natural calamityhas shrouded the one fifth part of thecountry. Initially it hit the upper partof the country and saner elementsrealised its protracted gravity from theday one because a person havingmodicum knowledge of topographydoes understand that sweet waterflows downwards to fall into the seaor ocean. The deluge emanating frommountainous area of Swat crept toreach the Indus delta at Keti Bunderin a month's time wreaking havoc oncrops, infrastructure, livestock andabove all people living along the rightand left banks of the river Indus.

Entire global fraternity was on samepage to declare this worst ever floodin hundred years severer thanTsunami of 2004, earth quake of 2005and that of Haiti. United Nations inthe very beginning tried to madeworld realise the high magnitude ofthe disaster and issued appeal forfunds which proved to be a catalyst atthe global front and internationalresponse began subsequently.Meanwhile, our callous political lead-ership could not avoid scoring politi-cally and exchanged allegations onsincerity of each other. However,some concerned quarter started view-ing the calamity at the backdrop ofeconomic losses and then it wasannounced to involve global multilat-eral donors to assess the flood dam-ages and this process is still continu-

ing till the filing of this report. According to initial assessments,

the country has suffered Rs350 toRs500 billion or $4-6 billion worth ofdamages of infrastructure, livestockand crops. Approximately $200 mil-lion would be required forrecovery/relief efforts whereas repaircost of key damaged infrastructurecould exceed $1 billion. Over 1,645

people have lost their lives while2,479 are injured to-date.

About 1,000 bridges and over 400kilometers of long roads have beendamaged, re-construction of whichwould cost Rs8 to 9 billion.

One-fifth of our irrigation infra-structure, livestock and crops havebeen destroyed. Pepco has initiallyestimated an accumulated loss of Rs4billion to its installations. In most ofthe areas grid stations, transformersand transmission lines have beendamaged. Wapda and Pepco cumula-tive losses exceed Rs13 billion. Theactual figures may be higher once thephysical survey is carried out.

Out of 968 health facilities assessed,over 517 have been damaged. 10,685schools are damaged; federalisedroads worth Rs6 billion and Railwaysworth Rs2.9 billion are damaged aswell. The floods have inflicted dam-age to the economy, which may, bysome estimates reach $10 billion.While affecting 30 per cent of all agri-culture land and more than 10 per centpopulation of the country, cropdestruction, livestock deaths, dam-aged homes and losses in terms ofinfrastructure i.e. roads, bridges, ener-gy, irrigation and social structures aremassive.

Pakistan's economy grew

by 4.1 per cent during the

last year and was expected

to grow 4.5 per cent during

the current fiscal. The

damage caused by the

floods will bring down the

real GDP growth to 2.5 per

cent for the FY11. This

economic loss will

translate into massive job

losses and incomes of

thousands of families.

Consequently it may have

serious social implications.

8

OverviewInvestors’ Guide

Pakistan's economy grew by 4.1 percent during the last year and wasexpected to grow 4.5 per cent duringthe current fiscal. The damage causedby the floods will bring down the realGDP growth to 2.5 per cent for theFY11. This economic loss will trans-late into massive job losses andincomes of thousands of families.Consequently it may have serioussocial implications.

Overall performance of agriculture,consequently, will be much lower thisyear and the year ahead. This loss willhave a snowball effect on manufactur-ing, services and export sectors. Mostfamilies face a real risk of income andemployment losses. Food security ofthe country is also under threat.

The devastation is likely to affectrevenue collection and increaseexpenditures, which will widen thebudget deficit. It will also hit textileand sugar sector, which will in turnaffect the balance of payments andexternal resource stability.

Manufacturing may also fall farbelow the target level of 5.6 per cent.Services sector (including wholesaleand retail trade) constituting morethan 50 per cent of GDP, is dependenton agriculture, manufacturing,imports, exports and government'scurrent expenditure.

The inflation target of 9.5 per centfor FY11 will be missed and it isapprehended that it may hit the rangeof 15-20 per cent. Inflation in theshort term (1-3 months) is likely tospike significantly in the face ofshorter supply (due to crop destruc-tion). The inflation will occur in dailyuse items such as vegetables, spiceslentils, fruits, meat and milk products.Medium term inflation (4-8 months)will rise due to spike in prices ofwheat, rice and sugar until the nextharvest.

Shortages and increased demand ofconstruction materials, fertilisers andpesticides will contribute to spikes innon-food inflation. The budget deficitbefore the food crisis was estimated toreach 4.5 per cent of GDP, now it isestimated to be as much as 6-7 percent of GDP.

The government needs around $3 to$4 billion or Rs300 billion to kick-start the rehabilitation process. It cannot depend wholly upon financialhelp from the international communi-ty only which at best would be $1 to$1.5 billion. It has limited options for

creating fiscal space by either borrow-ing from multilateral institutions ormobilising domestic financialresources by imposing direct taxes onselected items consumed by affluentsegments of the society. In either situ-ation, the focus should be on keepingthe economic recovery on track.

The government will further cutdown the expenditure on PublicSector Development Programme(PSDP) by Rs30 billion to bring itdown to Rs250 billion from Rs280billion. There are also discussions ofcharging a one time 10 per cent 'floodsurcharge' on tax liabilities exceedingannual income of Rs300,000 to getadditional funds of Rs75 billion.

As compared to the $6 billion givenby the world to the military govern-ment for the 2005 earthquake, thetotal present pledges so far stand atonly $1 billion and the actual moneyreceived so far is only $82 million.

According to economists, there arethree key challenges. First is to pro-

vide quick relief. Second is to repairpublic infrastructure so that those liv-ing in relief camps could return totheir places. And third relates torebuilding and reconstruction of alltypes and in all areas to rehabilitateflood-affected people and to achieveeconomic recovery.

They said that the real challenge liesin repairing damaged public infra-structure. That is where Pakistanneeds tens of billions of rupees withinmonths and that should ideally comein as aid and grants from abroad. Butpart of it can also be arranged bydiverting this year's pro-poor budget-ary allocations and by slashing upliftprojects.

They further said that as for recon-struction of economy and rehabilita-tion of flood survivors, a $1 billionloan committed by the World Bankand another $2 billion offered by theAsian Development Bank are crucial.But we need to involve our own pri-vate sector as well as governments offoreign countries and their privatesectors to undertake reconstructionprojects.

Now it remains to be seen that howgovernment cope with the challengesof relief in first phase and thereafterthe most vital phase of the rehabilita-tion which calls for long-termapproach with judicious use of fundsto re-erect the entire infrastructurebetter than the devastated one.Thereafter, the most crucial phase ofrecovery would begin and its successentirely depends upon how govern-ment tackles the challenges of reliefand rehabilitation.

The devastation islikely to affect revenuecollection and increase

expenditures, whichwill widen the budgetdeficit. It will also hit

textile and sugar sector,which will in turn

affect the balance ofpayments and external

resource stability.

10

ReviewInvestors’ Guide

FOR A WHILEFlood's effect on mutual funds

Mutual funds offloaded their holdings at the Karachi Stock Exchange during third

week of August and sold holding worth $13.41 million but invested $4.03 million in

shares resulting in net offloading of $9.38 million as per the data made available by

the National Clearing Company of Pakistan Limited (NCCPL).

Investors Guide Report

The impact of flood is ubiqui-tous and mutual fund industryis no exception. However,

experts said that the adverse affect ofworst natural calamity would beshorter than that of other sectorsbecause mutual fund industry mostlybases upon equity market and its isthe feature of stock market that itimbibes any pressure in few weeksand discounts its shock. Thereafter, itbegins to recover to face another cor-rection onwards. This is theentrenched beauty of the stock mar-ket everywhere around the world.

On the same premise local stockmarket is discounting the impact offlood and mutual funds particularlythose which are directly related withstocks are also following the suit andthis trend will stay put for anothermonth until the market absorbs thejitter fully. Mutual funds offloadedtheir holdings at the Karachi StockExchange during third week ofAugust and sold holding worth$13.41 million but invested $4.03million in shares resulting in netoffloading of $9.38 million as per thedata made available by the NationalClearing Company of PakistanLimited (NCCPL).

During the referred week, mutualfunds remained concerned on after-math of flood losses and resorted toselling of the stocks. According toone of the fund mangers, it virtuallysold the entire holding keeping inview irreparable losses incurred byPakistan due to catastrophic floods.He was also of the view that interna-tional commitments are not sufficientto offset the estimated losses.

According to Muhammad Shoaib,CEO, Meezan Asset Management

Limited, the main reason of takingback investment from stock marketby mutual funds is not risk factorbecause likelihood of redemptionpressure also counts a lot. There areseveral smart institutional investorsin stock funds which may have eval-uated the impending pressure onstock market and therefore havedecided to park their funds in somesecured securities till the crisis isover. However, he admitted thatmutual fund managers have also theirown assessment of future trends ofthe stock market and they may bedoing on the basis of their assess-ment.

Some fund managers are of theview that investment in equity fundsis generally made on long-term basis.Therefore, the main reason of with-drawing funds from stock can be reg-ular redemption pressure alonebecause most of the investors try totake long-term position in stock

funds and therefore, the recent exit bymutual funds could not be any fearfactor. However, they admitted thatthe recent drive to offload holdingsmust have some sound reasons whichcould not be declared collectivelybecause every AMC might have itsown reasons to take off from stockmarket for the time being.

The equity funds, which constitute25.4 per cent of the total open-endmutual fund asset size, have posted adescent growth of 4.4 per cent in theirasset size to Rs41.15 billion in July2010 as compared to Rs39.41 billionin June 2010. However, it is forecastthat the month of August would notbe so much rewarding for the fundbecause market would be in rangeeven if it sustain the pressure of floodimpact. Moreover, the 75 per cent ofopen end mutual funds and entireclose end fund does not receive directinfluence of stock market. Therefore,overall performance of mutual fundswould be free from any abnormal sit-uation.

Some market pundits are quite opti-mist and said that impact would notbe as large as it is predicted general-ly. They said that the direct hit of theflood would be on real sectors i.eagriculture and manufacturing whileservices sector having major chunk ofthe total size of the GDP would notfall under its direct blow. Therefore,market would be taking support fromvarious sub-sectors of services sectorand meanwhile both the real sectorswould start recovering. However,they also said that short-term nega-tive effect on stock market is obviousbecause market sentiments receiveevery impact, either more or less, butit is the ingrained feature of the mar-ket that it braves the pressure after awhile.

11

InterviewInvestors’ Guide

By: Mujtaba Baig

Investors' Guide: How do you see theimpact of floods on services sector espe-cially financial one and more particularlyon mutual fund industry? How long will ittake to recover?

Mohammad Shoaib: Obviously theimpact of floods is enormous and com-modities have directly been hit while esti-mates are being made of total losses. Itsultimate affects would soon be felt in all theleading sectors of the economy. Agricultureand industrial produce would be less in nextseason while its input cost will increasebecause most of the inputs in flood-affectedareas have also been swept away. Definitelyservices sector actually facilitate other sec-tors to perform better. Therefore, when itwill not have more to serve then financial

sector being an important component of theservices sector will also suffer.

However, it is a matter of satisfaction thatall stakeholders have come out to lend handin time of grief. Either they are donor agen-cies, friendly countries, world communi-ties, global financial institutions, govern-ments or local NGOs all are trying to con-tribute maximum in rescue, relief and reha-bilitation. The transition time till completerehabilitation would be more trying for thefinancial sector during which saving wouldbe less and ultimately investments wouldalso suffer. However, public investment forrehabilitation will boost economic activityand after recovery there would be retreat ofeconomy from downturn. But we mustkeep in mind that this entire process wouldtake sizeable time and in the short-term alland sundry will have to face the hard times

Islamic funds shine on featuresIslamic mutual funds' growth potential is higher in Pakistan

Sharia-compliance is top priority in Islamic finance

Meezan Islamic fund is biggest private equity fund

Flood impact on financial sector would be limited

Invest in cash fund for short-term, in stocks for long-term

Mohammad

Shoaib, CFA -

Chief Executive

Al MeezanInvestments

Mohammad Shoaib holdsMBA degree from IBA besidesChartered Financial Analyst(CFA) charter from CFAInstitute USA. He has servedas Senior Vice President andHead of Department forCapital Markets Division atPak Kuwait InvestmentCompany (PKIC). During histenure of five years PKICequity portfolio expandedfrom Rs60 million to overRs3,000 million.

12

financially. Investors' Guide: It is observed

that lack of exclusive professionalismis main problem of Islamic financialinstitutions which means there is noseparate breed of professionals for thissystem and this is the main reason thatits products are not developed andmarketed at required scale.

Mohammad Shoaib: It is not aproblem. It's a plus point for Islamicfinancial institutions because once aperson switches over to conventionalinstitutions he or she feels a clear dif-ference in quality of services offeredin Islamic institutions and other con-ventional institutions. In Islamicfinancial products there is no any hid-den cost nor do they have over-ambi-tious targets. Customer relationship isan important tool in financial productsindustry which offset the less-than-required performance of any productbecause customer satisfaction couldnot be gained merely through theyardstick of robust return. The ele-ment of credibility and long-term sta-bility also counts a lot and in this wayIslamic financial products have certainedge over the peers.

Investors Guide: Lack of innova-tions is said to have been another mainreason affecting the smooth expansionof Islamic financial products. Who doyou think is it mainly responsible fornarrow range of financial products inIslamic finance?

Mohammad Shoaib: This is thehallmark of any creative venture thatyou have to stay within limits whilemaking innovation in services youoffer. Islamic financial products arebeing innovated but obviously theyhave to follow certain Sharia principlesand therefore their impact lies in stay-ing within set parameters while offermaximum customer satisfaction. Thisis not a challenge it's an opportunity tomake market players realise that art ofinnovation can be applied even there islimited liberty to create big ideas.

Investors Guide: Don't you thinkIslamic AMCs are facing dual chal-lenges; first to make aware people onmutual funds and second to convincethem to buy Islamic mutual fundswhich offer safe returns and areSharia-compliant?

Mohammad Shoaib: It is indeed ahuge task in a society where majorityof people are already unaware of sig-nificance of mutual fund investing.But I would again say it is also an

opportunity because you don't have tocontact people twice to cope withthese dual challenges. Yet, you haveanother support argument of being

Sharia-compliant if your target persontries to avoid investing in interest-based funds. Therefore, it is an edge ofIslamic AMCs over conventional onesthat they can exploit belief system ofthe majority of populace to make theminvest in mutual funds.

This is the reason that being onlyIslamic AMC of the country AlMeezan Investment ManagementLimited has 75 per cent market shareand with 200 branches of its associat-ed company Al Meezan Bank it isfocusing retail customers vigorouslybecause institutional investors have noconcern about the nature of AMCs orfunds and their main concern isreturns. Therefore, realising thisunique feature of local market we aretrying to expand our outreach to pro-vide our services at grassroots leveland I am happy that we are quite suc-cessful in this strategy.

Investors' Guide: In a regime ofhigh discount rate how new invest-ment could be brought into mutualfunds especially in Islamic mutualfunds where the minimum rate ofreturn could not be guaranteed?

Mohammad Shoaib: Unless gov-ernment borrowing eases, interest rateis not going to lower and this will clipthe wings of mutual fund industrybecause fixed investment productsoffered by government capture themain market share. Therefore, productinnovation is the only way to stay putin high interest rate regime. Owing torising inflation people don't have anyother safe option but to invest in


Floods broughta lesson

Flood havocs have animplied message for ourdevelopment economists.Now there must be clear-cut plans with differentlength of time i.e short,medium and long-term.Development could notsuffer frequent naturaldisasters. In slight span ofsix years, this is the secondnatural disaster in thecountry. Therefore, nowdevelopment economistshave to rationalise theirplans. Similarly invest-ment experts have also lotto learn from this disaster.Capital expenditurescould not resist such dev-astation unless all suchexpenditures are inter-linked with each other andare free from politicalduress.

14


government securities which offersecured returns. In this way investorsare not getting good returns in realterms and they are just offsetting theinflation factor to retain the real valueof their money.

However, new products of mutualfunds with high quality of service cancompete with government securitiesbecause people have different visionabout investment and some peoplewant to put their money in varioussources of investment in the long-term. In this way best-planned capitalprotected funds with reasonable rateof return can help grow mutual fundindustry in era of monetary tighten-ing.

Investors' Guide: In monetaryterms what are the main advantagesof Islamic mutual funds as compareto their conventional counterparts?

Mohammad Shoaib: When a per-son makes up his or her mind toinvest in Islamic mutual funds thenthe decisive factor is rarely monetarybenefits. It is the nature of that fundwhich motivates one to invest inSharia-complaint fund. However,service quality can help retain theclientele in the long-term and Islamicfinancial sector is more particularabout service quality because itsother constraints like relative limitson product innovation and being newin the market could be offset by bet-ter services which are always calledfor by all customers.

Investors' Guide: It is said that TFCmarket might be seeing some jerks incoming days and its chain-effect willalso be felt on income funds. Do youthink this is going to happen?

Mohammad Shoaib: I think thisfactor has already been experiencedby income fund market and it hasreceived a hit due to some volatilityin TFC market. I don't think in futuresuch a big problem would arise.However, owing to previous shocks itis now pretty difficult to motivateinvestors to invest in income funds inbulk.

Investors' Guide: What should bethe role of regulator in developingmutual fund industry?

Mohammad Shoaib: I have saidseveral times that the role of regulatorshould be more than being mere aregulator. It should come forward forthe development of mutual fund

industry. Lengthy list of laws to regu-late the industry are commendable forgood business practices but they cannot alone help grow any industry.Therefore, regulator must redefine itsrole just like its regional peers tomake the mutual fund industry fullytap the existing potential for the max-imum growth of savings and invest-ments.

Investors' Guide: Do you feel thatMufap is playing its due role for safe-guarding the interests of fund indus-try?

Mohammad Shoaib: The role ofMufap is actually collective role ofall AMCs. It is doing its best for thepromotion of mutual fund industry inPakistan. However, its efforts to raiseawareness on this important tool ofinvestment need more momentum.But Mufap can not be alone responsi-ble for the lack of awareness onmutual funds because it is the job ofall market players and stakeholdersincluding regulator to make efforts topopularise this mode of investmentall over the country.

Investors' Guide: What are yourupcoming funds?

Mohammad Shoaib: We are plan-ning to introduce another CapitalProtected Fund in near future.Moreover, various investment plansincluding child education and mar-riage are in pipeline apart fromExchange Traded Fund which wouldbe quite new for the market.

Investors' Guide: Tell our readersabout your company?

Mohammad Shoaib: We, AlMeezan Investment ManagementLimited (Al Meezan Investments),are a joint venture of Meezan Bankand Pak Kuwait InvestmentCompany (PKIC), dedicated to pro-viding Shariah-compliant investmentsolutions. We specialise in invest-ment management, specificallydeveloping, floating and managingboth open and closed-end mutualfunds, investment advisory and thediscretionary management of institu-tional as well as high net worth indi-viduals (HNW) portfolios.

Investors' Guide: How did yourfunds perform so far?

Mohammad Shoaib: Net assets ofMeezan Islamic Fund as at July 31,2010 stood at Rs4.3 billion. Thefund's NAV increased by 9.2 per cent

during the period under reviewagainst an appreciation of 9.6 percent in the benchmark index (KMI-30) while KSE-100 Index during thesame period increased by 8.2 percent.

Net assets of Meezan IslamicIncome Fund (MIIF) as at July 31,2010 stood at Rs3.3 billion. MIIF hasprovided annualised returns of 15 percent for the month of July as compareto its benchmark which has providedannualised returns of 5.87 per centduring the same period.

Net assets of Meezan Cash Fund(MCF) as at July 31, 2010 stood atRs6 billion. MCF has provided annu-alised returns of 10 per cent for themonth of July as compare to itsbenchmark which has provided annu-alised returns of 7.7 per cent duringthe same period.

Meezan Sovereign Fund (MSF)was launched during February, 2010.As of July 31, 2010, the net assets ofthe fund stood at Rs668 million,showing a decline of 31 per centmonth on month. For the month ofJuly, the fund has provided annu-alised returns of 10.7 per cent againstreturns of 7.7 per cent of its bench-mark.

As at July 31, 2010, total size ofMeezan Tahaffuz Pension Fund(MTPF) stood at Rs288 million. Forthe month of July, the equity sub fundprovided a return of 8.6 per cent to itsinvestors while debt and money subfunds posted annualised returns of14.7 per cent and 14.4 per centrespectively. As at July 31, the netassets of Meezan Capital ProtectedFund (MCPF-1) stood at Rs649 mil-lion, showing an increase of 2 percent month-on-month. For July 2010,MCPF-1 provided returns of 2 percent.

Net assets of Al Meezan MutualFund (AMMF) as at July 31, 2010stood at Rs1.5 billion. The fund'sNAV appreciated by 9.4 per cent dur-ing the month of July against anincrease of 9.6 per cent in the bench-mark index (KMI-30) while KSE100-Index, during the same periodincreased by 8.2 per cent.

Net assets of Meezan BalancedFund (MBF) as at July 31, 2010 stoodat Rs1.34 billion. The fund's NAVincreased by 5.2 per cent during themonth.

15

CommentsInvestors’ Guide

Mujtaba Baig

It was being predicted for quite along time and now this processhas already been started. Is it con-

solidation in mutual fund industry orsomething beyond this? Let's have alook on what is happening around.

In this regard AMZ AssetManagement Limited has alreadyrolled up its operation in the begin-ning of this year while, according tointernal sources, another companyrenowned for its innovative funds forwomen and children is also consider-ing for closure. Sources said that themain reason to close the company issaid to be extraordinary redemptionpressure from institutional investorswhich company can not sustainbecause of huge volumes of suchredemption calls. If it pays out thecost of fund management would sky-rocket and this ultimately wouldsteeply push the company in negativezone. It is quite clear that most of themutual funds in the industry dependupon fistful of institutional investors.

Similarly, another asset manage-ment company - a subsidiary of aSouth Asia company- is in process ofits sell off to a leading investmentbank of the country. It is also being

under pressure of huge redemption byinstitutional investors and it has noway out to face it and its parent com-pany has decided to sell it to any seri-ous buyer. According to internalsources, a tycoon of capital markethas started shrinking his few busi-nesses in the country and plan to sellthis AMC is also part of the samestrategy. Likewise another AMC isalso moving towards closure becauseof dwindling sizes of its variousfunds.

According to experts, the key rea-son of redemption pressure in mutualfund industry is dismally low realreturns, lower quality of assets andhigh-risk instruments like TFCs andSukuks apart from weak economicindicators. Moreover, intensified reg-ulatory regime of Securities andExchange Commission of Pakistan isalso said to be one reason of de-moti-vation of fund managers to exploreany way out to sustain the recent hikein redemption pressure. A fund man-ager lamented that sometimes itbecomes so painful to respond tounnecessary queries of regulatorespecially when every venture istowards slowdown.

It may be recalled that after com-mencement of mutual fund industry

in private sector a mushroom growthwas observed in this sector whenseries of companies started venturinginto this new business in the country.Even local banks and brokeragehouses could not let this avenue unut-lised and stepped in with the supportof their expertise in financial man-agement and some of them did quitewell for the greater good of the indus-try.

However, the bad omen in thebeginning of this globally-acclaimedsafe and reliable source of investmentin the country was all-pervasive herdinstinct in every mutual fund compa-ny.

Most of them blindly followedspeculative surge in stock marketduring first half of this decade andamassed their funds into the labyrinthof stock trading completely puttingaside the fact that our bourse neverperformed in such a robust way sincethe inception of equity markets in thecountry.

Most of our fund managers willful-ly or ingeniously forgot that oureconomy was relying on the crutchesof services sector during those daysowing to more-than-expected boostin telecom and banking sectors whileperformance of real sectors ie agri-culture and manufacturing was quitenormal like it is at present.

Despite this fact, most of the finan-cial managers wrongly presumed thatstock market was positively respond-ing to economic surge and eventuallythey were the people who were worstaffected professionally by the consec-utive two crisis in the stock market.

Consequently slowdown also tookplace in mutual fund industry becausemajor allocation of the industry isusually made in stock market particu-larly in a country where commoditiesmarket is not advance enough whilebond and government securities havelimited range of offerings. In such ascenario the downturn in mutual fundindustry is continuing unabatedwhere total funds under managementwere near Rs400 billion in times ofboost are now hovering at the brinkof Rs200 billion mark. Saner fundmanagers at the outset of the slow-down in the market prophesied thatconsolidation was likely in the indus-try but symptoms are now signalingbeyond consolidation where manycompanies seem to be fighting for thevery survival.

Beyond

consolidation?

Shutdowns in mutual fund industry

17

MODEST HITFlood's impact on banks

"The matter of grave concern for banking sector is widespread crop and livestock loss

because it would unleash a chain of loan defaults and bring pressure on their profits as

banks would be required to make substantial provisioning against their fresh bad debts"

Investors' Guide Report

The massive devastation dueto floods has also hit bank-ing industry as most of thebank branches located in

flood-affected areas wholly or par-tially damaged while the impact oftwenty per cent inundated agrarianeconomy would take its toll inmonths to come. Experts said that incoming months the rate of loandefault especially pertaining to microfinancing and farming will move upwhile deposits' growth will also falterputting adverse impact on overallincrease in deposits.

Banks will have to share the cost ofcrop damages in medium termbecause farm sector has lost its stand-ing crops on millions of hectares and

will claim moratorium on loans.Moreover, for the next crop, farmingcommunity will claim loans on sub-sidised rates and both these factorwill hit the banking spreads.

The damages to banking infrastruc-ture including bank buildings andequipment is neither so large norbanks are very much concerned aboutit because each banking company hasprovision against abnormal lossesand the same will be covered accord-ingly. "The matter of grave concernfor banking sector is widespread cropand livestock loss because it wouldunleash a chain of loan defaults andbring pressure on their profits asbanks would be required to makesubstantial provisioning against theirfresh bad debts", said a banker.

He said it is difficult to immediate-

ly estimate the actual fallout of theflash flood on the banking sectorbecause their impact will begin toappear gradually in the weeks andmonths to come. But, he warned, thelosses of the banks in terms of loandefaults and lost deposits could besubstantial.

Agriculture is the second largessector of the economy after servicessector and it nearly contributes 20 percent to the GDP. If its 20 per cent isseverely hit by the flood it means thatits role in GDP of current fiscalwould be only 16 per cent instead ofprevious 20 per cent. It has alreadybeen declared by the experts that itwill take two years to start farming inflood-affected areas afresh whichmeans the impact of less contributionby agriculture sector on GDP


18

will stay for the next two years affect-ing overall economic growth of thecountry.

A stock analyst in his recent analy-sis said considering that the agricul-ture sector contributes over 20 percent to gross domestic product (GDP)and that a large part of the corporatesector is directly linked to the agricul-ture sector, the banking industry isboth directly and indirectly exposedto the consequences of the disastrousfloods.

Immediately, he adds, the bankshave to contend with potential write-off of direct agriculture loans, dam-age to their branch networks, andpossible pressure on selected corpo-rate borrowers.

That said, he argues, the banks donot face much of a risk of losingmoney on their agriculture lending."The banks' direct agriculture lending(ex-commodity financing) is limited -it is less than five per cent of the totalloans of five major banks, andlenders can recover their losses fromcrop insurers," he contends.

Another important aspect of floodimpact on banking sector is double-hit feelings of small banks whichwere already containing their opera-tions to reduce their operational coston the back of their relatively lessmarket share. More than eighty percent share of banking industry isunder the control of five big bankswhile the leftover is to be sharedamongst forty local and foreignbanks. It may be recalled that largerbanks amassed more than 90 per centof the total banking sector profits dur-ing 2009. Now after the floods, smallbanks will also be impacted moreseverely because their collectiveshare will also shrink accordingly.

Before this natural calamity, somesmall banks were closing down theirloss-making branches and operationsand firing workers, others were tryingto expand their operations to the ruralsector to tap its hitherto untappedpotential for deposits. But now amajor part of the devastated ruraleconomy will not be their target mar-ket and it will bring change in theirapproach for survival before the fewgiants.

Over the last several years, even thelarger banks have tried to trim theirworkforce per branch to cut theiroperational costs. Habib Bank, forexample, brought down the numberof staff per branch to 8.8 in 2009

from 9.8 in 2007. Similarly, UnitedBank reduced its workforce to 12.7per branch from 13.7, MuslimCommercial Bank to 12.5 from 16.7and National Bank of Pakistan to12.6 from 13. Allied Bank, however,has raised the number of its work-force per branch to 15 from 13.6 dur-ing the same period, said a reportissued recently.

According to State Bank ofPakistan, the non-performing loans ofthe banks and development financeinstitutions touched alarming heightdespite slower pace of accumulationin the second quarter of the calendar2010. The combine NPLs of banksand DFIs stood at record Rs473.89billion as of June 30, 2010. Thealarming surge in NPLs will ultimate-ly hit the economic growth.

The SBP data showed that theNPLs of all banks and DFIs rose byRs2 billion during the second quarterof the calendar 2010 while the NPLsof all banks rose by 2.6 billion toRs459.84 billion during the sameperiod.

The largest accumulation of NPLswas recorded by the private sectorbanks, which are the biggest loanprovider to the private sector. TheNPLs of the private banks during thesecond quarter increased by Rs4.7billion to Rs307.6 billion and that ofspecialised banks rose by Rs1.1 bil-lion to Rs28.488 billion.

The public sector banks includingNational Bank of Pakistan (NBP),Bank of Punjab (BOP), Bank ofKhyber (BOK) and First WomenBank performed better as their NPLsdropped which was against the previ-ous trend. The NPLs of the publicsector banks declined by Rs4.3 bil-lion during the second quarter whileit had accumulated Rs4.8 billion in

first quarter.On the flip side, despite poor eco-

nomic scenario, banks kept improv-ing their profits during the first halfof this calendar year as they earned anet profit of Rs35.5 billion.

The private sector did not play akey role for banks' profits; it was thebanks' investment mostly in govern-ment papers which yielded profit forthem.

During the second half of the calen-dar year, the government kept bor-rowing heavily from commercialbanks through treasury bills while thebanks found it easy to get risk freehigh return.

The half yearly report showed thatbanks earned by keeping most of theprofits at the cost of depositors. Thelatest information provided by theState Bank showed that the bankingspread has sharply increased to 7.6per cent in July, which was 16-monthhigh. Higher banking spread meansbanks get more while depositors getless return on their deposits.

The banking industry in UnitedStates and Europe is still under pres-sure, particularly in the US wheregovernment pumped hundreds of bil-lions of dollars to save banks and thebanking system.

Last year the Pakistani banksearned high profits but the five bigbanks dominated the scenario andthey grabbed over 90 per cent ofentire profits earned by the bankingsector. The situation did not changeduring the half year of this calendaryear.

The situation is alarming for thesmall and medium banks trying tosurvive in the situation completelydominated by the five big banks.

The situation has been the same forthe last three years and the State Bankremains silent over it.

The small and medium banks werenot helped out nor was any step takento reduce the monopolistic domina-tion of the 5 big banks. However, theonly relaxation given to the small andmedium banks was the extension ofdeadlines to meet the MinimumCapital Requirement.

At least 12 small and mediumbanks were unable to meet MCR atthe end of December 2009. The StateBank extended the deadline twice butthese banks could not come out fromthis mire. But now after flood havoc,both small and big banks have to facesome consequences in the short run.

Agriculture is the second

larges sector of the

economy after services

sector and it nearly

contributes 20 per cent to

the GDP. If its 20 per cent

is severely hit by the flood

it means that its role in

GDP of current

fiscal would be only

16 per cent instead of

previous 20 per cent


19


Is it too late?Insurance against natural disasters


Alas!Had my cottoncrop beeninsured, I

would have not suffered this muchlosses as the compensation wouldhave somewhat offset the quantum ofthe losses of my crops, said DhaniBux sitting idle in a relief camp nearToll Plaza, Super Highway. He hadten acre land in Thul districtJacobabad where cotton crop wasabout to be reaped but the mercilessflash floods swept the entire produceand inundated his land and propertyforcing him to take refuge in a reliefcamp with his family hundreds ofmiles away from his hometown. Buthis regret for not getting insured hiscrop was quite reflected in his sombereyes which showed the importance ofinsurance to cover unforeseen losses.

According to an expert of generalinsurance, out of total devastationhardly 10 per cent may have beeninsured, approximately 2 per cent inKhyber-Pakhtunkhwa and 7 to 8 percent in southern Punjab while inSindh there might not be even a sin-gle agriculture field or crop insuredbecause of apathy of local people tosuch precautionary measures. He saidthat out of insured losses only fiftyper cent might have been covered byany credible insurance companywhile rest of the others were done byso-called insurance agencies whichare duping the innocent villagers bycharging fee for nothing. He saidprobably these companies would not

pay compensation or whatsoever theydo so would be next to nothing tocover the huge losses suffered byaffectees.

According to another expert, apartfrom agriculture or crop insurancethere is a provision of atmosphericdisorders in fire insurance which cov-ers the property losses owing to natu-ral calamity. But general insurance isequal to none in rural areas and onecan not say even one per cent ofdestroyed property by flooding mayhave been covered. However, it issaid that life insurers have penetratedin rural areas but in recent floodsnon-life losses are far higher than lifelosses while general insurance istotally missing in rural areas becauseof rural people's cultural normswhich ask villagers to leave every-thing on destiny without taking careof it. According to insurance experts,most of the crops were insured inflood-affected areas through ZaraiTaraqiati Bank which prefers todevelop understanding for this pur-pose with smaller insurance compa-nies where it has more room for its piethan the big companies which offerless to intermediaries. It is learnt thatunder every agricultural loan there isan option of insurance which the bor-rower leaves to the consent of lendermeans whichever company a lenderdeems fit may hire for the insuranceservice. In most of the cases ZaraiTaraqiati Bank arranged crop insur-ance through a small companywhich means now claims will takesizeable time to mature and ultimate

sufferers would be flood-affecteeswho need prompt compensation torestart their lives.

Some large insurance companiesare expanding their marketing net-works because they believe that afterrecovery from flood, people wouldbecome more aware on importance ofinsurance and an aroused interestfrom rural side might be witnessedafter few months. Therefore, somebig companies are planning to expandtheir marketing force to avail thisopportunity which was not createdbut emerged due to flood which hasshattered the rural economy and itsrehabilitation will take a longtime.Thereafter, our general insurers mightbe receiving huge orders from ruralside for both crop and property insur-ance.

According to experts, now it all upsto insurance companies how theydevelop their marketing strategy andexploit this worst disaster for thebroader good of insurance sector.They said that at the time of assassi-nation of Mohtarama Benazir Bhuttohuge losses of property and vehiclesincurred but because of conflictamong insured and insurer most ofthem could not be covered. They saidthat like atmospheric disturbances,the provision of terrorism and riotsshould also be included in fire insur-ance to broaden the scope of fireinsurance. However, in case of floodthere is no discrepancy with respectto property losses by floods andinsurer is bound to pay compensationfor the loss of property and valuables.

20

AnalysisInvestors’ Guide

Shiraz Ahmed

Many asset management com-panies having dwindlingincome funds are covertly

very grateful to apex regulator whichingenuously helped the fund man-agers to retain asset allocation undersaid funds in forbidden low-ratedTFCs by letting them to convert theirincome funds into aggressive incomefunds just for the sake of complianceof certain rules.

Securities and ExchangeCommission of Pakistan has offeredenabling space to AMCs to easilyturn income fund into an aggressiveincome fund. Once income fundswere badly hit by their allocations injittery TFC market and in some caseslow-rated TFCs were tried by target-centric fund managers and as a resultthey secured less returns and facedhuge redemption pressure on saidfunds.

Irony of the fact is that by simplyadding the word aggressive beforeincome fund a fund manager canmake allocations under this categoryin prohibited low-rated TFCs andmay ward off regulatory rebuke onfailing to maintain the portfolio of thefund within set parameters. Expertssaid that sometimes consequences ofany regulatory order are not properlypreviewed and this did happen whenSECP issued Circular No 07, 2009 onMarch 06, 2009 which binds AMCsnot to allocate assets of income fundsin TFCs having low ratings. Butunder aggressive income fund suchTFCs could be ventured and there isno restriction for investing in them.

Recently, the category of AlfalahGHP Income Multiplier Fund waschanged from "income fund" to"aggressive income fund", whichcompletely altered its outlook. Itsincome fund has asset allocationwithin the range of 5.21 per cent to14.51 per cent in four TFCs with rat-

ings below BBB which is minimumstandard set by regulator but as soonas the Fund was converted intoaggressive income fund all such devi-ations turned into compliance by thegrace of SECP. A look at the assetallocation of previous income fundand current aggressive income fundfor the month of July of the Fund isgiven below.

Alfalah GHP Income MultiplierFund Aggressive Income FundIncome Fund

It may be noted that after witness-ing disappointing performance ofincome funds in FY10, investorshave switched their existing portfo-lios from income fund category tomoney market fund category.

This is evident from the fact that atthe end of FY09 the asset under man-agement in income fund categorydeclined from Rs75 billion to Rs55.8billion, a decline of Rs19.28 billionin absolute terms or 25.7 per centYoY.

Three new income funds werelaunched in FY10; these were LaksonIncome Fund, NAFA Saving PlusFund and NIT Income Fund whichcumulatively added Rs3.33 billion. Ifthese funds are excluded the declinemay have been more than 30 per cent.

According to fund managers, therecent slowdown in growth of incomefunds is due to eroding value of TFCsand Sukuks which hit a blow on over-

all size of income funds in recent pastand these are still recovering fromthis hit.

Experts said the main reason ofhuge redemption pressure on incomefund category is not merely its alloca-tion in loss-making TFCs but also ofinefficiency of fund managers to takeexit from declining TFCs while theirlack of vision is also another factorwhich could not made them previewthe fall in TFCs and despite of thisfact they continued allocating assetsunder low-performing securities.

On the flip side, the performance ofthe money market funds category wasoutstanding in FY10 as asset undermanagement in this category grew by728 per cent to Rs43.5 billion inFY10 as compared to Rs5.2 billion inFY09, a growth of Rs38 billion inabsolute terms.

The increasing trend of investmentin money market funds was due to itsreturn two-time higher than thoseoffered by income fund category(money market has provided averagereturns of 10.43 per cent in FY10 ascompared to 5.80 per cent averagereturns of income fund category),apart from having low risk and highliquidity due to its no exposure inTFCs. Almost all the AMCs havenow brought out their money marketfunds after experiencing massive hitin income funds category to avoidpossible redemption.

Be aggressive

for compliance

From income fund to aggressive income fund

Alfalah GHP Income Multiplier Fund Aggressive Income

Income Fund Fund

Compliance Non ComplianceTFCs Allocation (% of total Assets) Jul-10 Jun-10 Rating

Financial Rec'Bles Sec'Zation Co. Ltd 1.09% 1.05% AA-Pakistan Mobile Communication 9.99% 8.42% AA-Trakker 1.43% 1.21% ASME Leasing 0.93% 0.99% BBB+Trust Investment 5.14% 5.21% BBBAl-Zamin 7.78% 6.71% NPAAgritech 17.23% 14.51% NPAMaple Leaf Sukuks 10.19% 8.51% NPAKohat Cement Company 11.62% 9.79% NRSecurity Leasing 0.50% 0.43% NR

21

PerformanceInvestors’ Guide

EQUITY FUNDS

During July '10, the benchmark KSE100-Index surgedby 8.20 per cent. Equity market funds that track KSE100-Index followed the suit. Out of sixteen equity

funds, all of them posted positive returns. Six of them alsooutperformed KSE-100 returns of 8.20 per cent due to overallbroader market which moved upward during the period underreview.

The average returns of equity funds were 8.0 per cent in July'10 which were 675 basis points higher than those of previousmonth. Regarding fund's performance, Atlas Stock MarketFund secured best risk-adjusted returns; it also outperformedaverage equity returns by 247 basis points and posted 10.47

per cent returns in July '10.In terms of assets' size, the equity funds, which constitute

25.4 per cent of the total open-end mutual funds' asset's size,has posted a decent growth of 4.4 per cent to Rs41.15 billionin July '10 as compare to Rs39.41 billion in June '10. Onceagain the increase in assets' size would be higher if we adjustdividends announced by equity funds.

In terms of increase in individual equity fund's asset's size,Pak Oman Advantage Stock Fund surged by 12.8 per centMoM to Rs117 million followed by MCB Dynamic StockFund and KASB Stock Market Fund which assets' size soaredby 11.4 per cent and 7.80 per cent respectively.

Equity Funds July 2010 Returns (%)

Atlas Stock Market Fund 10.47

United Stock Advantage Fund 10.08

ABL Stock Fund 9.01

MCB Dynamic Stock Fund 9.00

IGI Stock Fund 8.96

KASB Stock Market Fund 8.87

Crosby Dragon Fund 8.00

Lakson Equity Fund 7.92

NAFA Stock Fund 7.86

HBL Stock Fund 7.56

Pakistan Stock Market Fund 7.49

National Investment Trust 7.45

First Habib Stock Fund 6.80

Alfalah GHP Alpha Fund 6.73

AKD Opportunity Fund 5.49

Pak Oman Advantage Stock Fund 5.25

Source: TFD Research & Fund Manager Report


22


INCOME AND MONEY MARKET FUNDS

Income and money market funds performed relativelywell during July '10 as compare to previous months,thanks to Mufap which has re-priced TFCs on the

upward basis. Furthermore, launch of PICIC Income Fundhas also increased funds' size of income fund category.Once again money market funds remained in limelight astheir asset under management up by 21 per cent in July '10.

Income and money market funds which are 61 per cent oftotal open-end mutual funds' asset's size showed positivegrowth of 8.4 per cent to Rs107.57 billion at the end of July'10 as compare to Rs99.2 billion in June '10, a rise by

Rs8.40 billion in absolute terms. Out of Rs8.40 billion;UBL Liquidity Plus Fund, MCB Cash ManagementOptimizer Fund and Nafa Government Securities LiquidFund assets' size surged by Rs3,209, 1,825 & 1,641 millionrespectively to Rs11.05, 8.35 & 7.45 billion in July '10.

Comparing fund's performance, Dawood Money MarketFund obtained annualised returns of 157.8 per cent in July'10 and thus outperformed its respective category, fol-lowed by AKD Income Fund and IGI Money Market Fundwith returns of 14.60 per cent and 11.39 per cent respec-tively.

Income & Money Market Funds July 2010

Returns (%)

Dawood Money Market Fund 157.84 n/r

AKD Income Fund 14.60 BBB(f)

IGI Money Markets Fund 11.39 n/r

JS Aggressive Income Fund 11.26 n/r

UBL Liquidity Plus Fund 11.25 AA+(f)

MCB Cash Management Optimizer Fund 11.20 AA(f)

KASB Cash Fund 11.14 AA+(f)

JS Cash Fund 11.00 n/r

MCB Dynamic Cash Fund 10.90 A+(f)

Atlas Money Market Fund 10.89 AA(f)

Lakson Money Market Fund 10.84 n/r

Askari Sovereign Cash Fund 10.78 AA+(f)

Pakistan Cash Management Fund 10.77 AAA

Alfalah GHP Cash Fund 10.77 AA(f)

Meezan Sovereign Fund 10.69 AA+(f)

Pakistan Income Enhancement Fund 10.66 A+(f)

NAFA Government Securities Liquid Fund 10.59 AA+(f)

Faysal Savings Growth Fund 10.58 A(f)

NIT Income Fund 10.53 n/r

ABL Income Fund 10.47 A+(f)

NIT Government Bond Fund 10.45 n/r

BMA Express Cash Fund 10.45 AA+(f)

Pakistan Income Fund 10.36 AA-(f)

IGI Income Fund 10.24 n/r

Meezan Cash Fund 10.03 AA(f)

Lakson Income Fund 9.91 n/r

First Habib Income Fund 9.89 AA-(f)

NAFA Saving Plus Fund 9.52 AA-(f)

JS Income Fund 9.22 AA-(f)

Crosby Phoenix Fund 8.28 A(f)

NAFA Cash Fund 8.09 A+(f)

KASB Liquid Fund 7.63 BBB+(f)

MSF - Perpetual 7.45 AA (f)

HBL Income Fund 6.47 A(f)

Alfalah GHP Income Multiplier Fund -0.10 u/p

Askari Income Fund -3.59 n/r

Atlas Income Fund -6.16 A+(f)

POBOP Advantage Plus Fund -6.98 A-(f)

United Growth & Income Fund -8.47 A(f)

BMA Chundrigar Road Saving Fund -11.70 A-(f)

Namco Income Fund -34.92 A(f)

n/r: not rated

u/p: under progress



23


BALANCED FUNDS

Balanced funds looked more flexible for switching of assets interms of allocation. Out of five funds, all the funds postedpositive returns. However, none of them could outperform

KSE 100-Index. The average returns of balanced fund category dur-ing the month of July '10 were 4.53 per cent as compare to returnsof 0.72 per cent in June '10, up by 381bps MoM.

Nafa Multi Asset Fund secured 6.13 per cent returns and onceagain outperformed balanced fund category's average returns by160bps and remained best pick in balanced fund category. The out-performance was due to its significant exposure in E&P sector.

In terms of asset's size growth the category stood at Rs5.12 billionat the end of July '10 as compare to Rs5.18 billion in previous month(June '10), declined by 1.2 per cent MoM. The drop in asset's sizewas due to dividend announcements by almost all the funds for the

year FY10. In terms of growth in fund's asset size, Pakistan CapitalFund jumped by 4.5 per cent to stand at Rs460 million.

ISLAMIC EQUITY FUNDS

As far as Islamic funds are concerned, all the three Islamicequity funds - which are exposed to local capital market -posted positive returns. However, except JS Islamic Fund,

remaining two outperformed KSE 100-Index returns of 8.20 percent.

Atlas Islamic Stock Fund and Meezan Islamic Fund providedoptimum risk-adjusted returns in this category as they postedgains of 10.01 per cent and 9 per cent respectively in July '10 ascompare to average category returns of 8.89 per cent, and thusoutperformed category by 112bps & 11bps respectively.

The size of Islamic equity funds slightly increased by 7.8 percent to stand at Rs4.96 billion in July '10 as compare to Rs4.60billion in June '10.

In terms of growth in individual fund's asset size in Islamicequity fund category, Meezan Islamic Fund hiked by 9.5 per centto Rs4,341 million at the end of July '10.

Balanced Funds July10 Return (%)

NAFA Multi Asset Fund 6.13

HBL Multi Asset Fund 5.53

Faysal Balanced Growth Fund 5.31

Pakistan Capital Market Fund 4.95

Unit Trust of Pakistan 4.22

KASB Balanced Fund 1.04


Islamic Equity Funds July 10 Return (%)

Atlas Islamic Stock Fund 10.01

Meezan Islamic Fund 9.00

JS - Islamic Fund 7.66


24


ISLAMIC

INCOME FUNDSDuring July '10, the assets' size of Islamic income funds dropped

by 3.3 per cent to Rs6.11 billion as compare to Rs6.32 billion inJune '10 showing a fall of Rs206 million in absolute terms.

Meezan Islamic Income Fund - which contribute around 54 percent of category's size - posted annualised returns of 14.98 percent in July '10 and remained the top pick in the category, fol-

lowed by Faysal Islamic Savings Growth Fund and IGI IslamicIncome Fund with annualised returns of 9.45 per cent & 9.27 percent respectively.

In terms of growth in asset's size, IGI Islamic Income Fundgrew 14.4 per cent to stand at Rs453 million during the monthunder review.

Islamic Income Category July 2010 Returns (%)

Meezan Islamic Income Fund 14.98

Faysal Islamic Savings Growth Fund 9.45

IGI Islamic Income Fund 9.27

Atlas Islamic Income Fund 9.16

Pak Oman Advantage Islamic Income Fund 8.18

Askari Islamic Income Fund 8.08

NAFA Islamic Income Fund 3.79

United Islamic Income Fund -4.71

KASB Islamic Income Fund -27.34


25


ASSET ALLOCATION FUNDS

Asset allocation funds adopted a mild view for switching ofassets in term allocation. Funds in the respective categorywere aggressively exposed to equity market during the

period under review on anticipation of surge in KSE 100-Index. Out of five funds in the asset allocation category, all of them

posted positive returns. However, none of them could outperformKSE-100 returns in July '10. JS Aggressive Asset Allocation Fundwas best pick in asset allocation category as it posted gains of7.66 per cent and outdid its category by 190bps, followed byAskari Asset Allocation Fund and Faysal Asset Allocation Fundwith returns of 6.52 per cent and 5.60 per cent respectively.

In terms of growth in assets' size, the category stood at Rs1.48billion at the end of July '10 as compare to Rs1.55 billion in lastmonth; a decline of 4.6 per cent MoM.

In terms of growth in individual fund's asset size, JS AggressiveAsset Allocation Fund move up by 6.6 per cent to Rs163 millionat the end of July '10.

Asset Allocation Category July 2010 Return (%)

JS Aggressive Asset Allocation Fund 7.66

Askari Asset Allocation Fund 6.52

Faysal Asset Allocation Fund 5.60

MCB Dynamic Allocation Fund 5.50

Alfalah GHP Value Fund 3.54


ISLAMIC ASSET ALLOCATION FUNDS

The assets' size of Islamic asset allocation funds posted posi-

tive growth of 0.5 per cent in July '10. All the funds in the

Islamic asset allocation category secured positive returns.

However except Dawood Islamic Fund none of them could outper-

form KSE 100-Index returns.

The category's asset's size stood at Rs2.16 billion as compare to

Rs2.15billion in June '10, increase by 0.50 per cent MoM. Dawood

Islamic Fund was the best pick in Islamic asset allocation catego-

ry as it posted gains of 9.06 per cent and thus outperformed its

asset allocation fund category average by 345 bps.

In terms of asset's size growth, Pakistan International Element

Islamic Fund and United Composite Islamic Fund reflected posi-

tive growth of 4.9 per cent and 4.9 per cent to stand at Rs410 mil-

lion and Rs524 million respectively.

Islamic Asset Allocation category July 2010

Returns (%)

Dawood Islamic Fund 9.06

Pakistan International Element Islamic Fund 6.95

NAFA Islamic Multi Asset Fund 6.30

United Composite Islamic Fund 5.74

Pak Oman Advantage Islamic Fund 4.78

Alfalah GHP Islamic Fund 4.33

Askari Islamic asset allocation 2.13


26


Performance of Mutual Funds in July, 2010

MODEST RECOVERYInvestors' Guide Research

Mutual funds' size surged

impressively by 5.60 per cent

in July, the first month of new

fiscal year 2010-11 where its asset's size

rose to Rs208.6 billion as compare to

Rs197.5 billion in June 2010.

Open-end funds which contribute

almost 85 per cent of total mutual funds

industry's size stood at Rs176.28 billion

in July '10 as compare to Rs167.6 billion

in June '10, showing an increase of 5.2

per cent month-on-month (MoM); while

closed-end funds were at Rs32.29 billion.

In absolute terms, the total mutual fund

industry rose by Rs11.06 billion MoM.

Out of Rs11.06 billion, Rs8.4 billion

(76 per cent) were raised by money mar-

ket and income funds followed by equi-

ty funds which added Rs1.74 billion.

During the month Picic Asset

Management Company launched its first

open-end fund namely Picic Income

Fund which in the first month raised

Rs2.3 billion. However, dividend

announcement from all AMCs caused

the funds' size to decline. Otherwise, we

would have seen the increase of 15 per

cent in total industry's assets' size.

Before evaluation of the mutual fund

industry, given below is overall scenario

of the industry.

Categories Jul-10 (Rs in bn) Jun-10 (Rs in bn) % change

Equity Market Funds 41.15 39.41 4.4

Income & MM Funds 107.57 99.22 8.4

Balanced Funds 5.12 5.18 -1.2

Islamic Funds 4.96 4.6 7.8

Islamic Income Funds 6.11 6.32 -3.3

Hybrid Funds 6.86 8.33 -17.6

Asset Allocation Funds 1.48 1.55 -4.5

Islamic Allocation Funds 2.16 2.15 0.5

Fund of Fund 0.87 0.84 3.6

Open-End Fund Size 176.28 167.6 5.2

Closed-end Fund Size 32.285 29.9 8.0

Total Mutual Funds Asset Size 208.6 197.5 5.60


27

Funds in FocusInvestors’ Guide

Key FactsFund Manager Lakson Investment Fund Type Equity FundFund Launch\ Date 13th November, 2009 Minimum Investment Rs 5,000 Front End Load (%) 3.0Management Fees (%) 3.0Fund Size (mn) Rs 138Benchmark KSE100 IndexTrustee CDC Auditor BDO Ebrahim & Co

Investment ObjectivesThe investment objective of the Lakson Equity Fund is to provide long-term capital appreciation by investing mainly in equity and related listedsecurities. Investments will be made in companies of substance, financialstrength and demonstrably superior management skills with some expo-sure given to smaller capitalized value stocks.

Return on FundFund Return (%) Benchmark Return (%)

July10 Return 7.92 8.102 Months 9.60 12.793 Months -1.28 0.874 Months -1.34 3.356 Months 3.34 9.41Since Inception 7.20 16.01

Monthly Annualised Returns LEF (%) KSE100 (%) % Excess Return

Jan-10 1.65 2.42 -0.77Feb-10 0.29 0.45 -0.16Mar-10 4.44 5.39 -0.9Apr-10 -0.06 2.45 -2.51May-10 -9.93 -10.56 0.63Jun-10 1.56 4.34 -2.78Jul-10 7.91 8.10 -0.19Source: Fund Manager Report

Fund Size (Rs in mn) % Growth MoMJan-10 134.0 8.06%Feb-10 134.0 0.00%Mar-10 140.0 4.48%Apr-10 140.0 0.00%May-10 126.0 -10.00%Jun-10 128.0 1.59%Jul-10 138.0 7.81%Source: Fund Manager Report

Fund Manager point of viewThe Lakson Equity Fund (LEF) provided a return of 7.92 per cent in July'10 as compare to the benchmark (KSE-100 Index) return of 8.10 per centtranslating into an underperformance of 18 basis points. The LEF hasappreciated by 7.20 per cent since its inception in November '09. Theunderperformance of the LEF in comparison to the benchmark hasreduced in July '10 as during the month the investors focused on the bluechip stocks other than the index heavyweights. The LEF reduced its expo-sure in equities to 82 per cent as compare to 83 per cent in June '10 as theLEF booked some gains in banks and energy stocks. The market is cur-rently trading at a P/E of 8.44x with a dividend yield of 5.40 per cent,

LAKSON EQUITY FUNDwhile the P/E and dividend yield of the portfolio of LEF is7.56x and 6.45 per cent respectively.

OutlookAfter the increase in discount rate by the SBP, the economicoutlook appears more difficult and if the fiscal imbalancesprevail then the SBP may further increase the discount ratethat will negatively affect the valuations of the market.Keeping in view all these factors the LEF will maintain highexposure in defensive and dividend-yielding stocks while theLEF will maintain an overall exposure of 70 per cent in equi-ties.

Top HoldingsAllied Bank LimitedAttock Petroleum LimitedEngro Corporation LimitedFauji Fertilizer Company LimitedMCB Bank LimitedPakistan Oil FieldsPakistan Petroleum LimitedPakistan State OilHub Power Company LimitedUnited Bank LimitedSource: Fund Manager Report

28


Key Facts

Fund Manager Arif Habib Investment Fund Type Balanced FundFund Launch\ Date 24th January, 2004 Minimum Investment Rs 5,000Front End Load (%) 2.0Management Fees (%) 2.0Fund size (mn) Rs 460Benchmark 50% KSE100 Index / 50% 1yr T-BillsTrustee CDC Auditor A.F. Ferguson

Investment Objectives

The objective of the Fund is to provide investors a mix of income and cap-ital growth over medium to long term from equity and debt investments.

Return on Fund

Fund Return (%) Benchmark Return (%)

July10 Return 4.95 4.94Quarter on Quarter 0.90 1.84FY11 to Date 4.95 4.94Since Inception 129.80 103.27

Monthly Annualised Returns PCM (%) Benchmark (%)

Jan-10 0.61 1.78Feb-10 0.41 0.65Mar-10 1.62 3.48Apr-10 3.49 1.83May-10 -6.08 -5.55Jun-10 2.36 2.75Jul-10 4.95 4.94Source: Fund Manager Report

Fund Size (Rs in mn) % Growth MoM

Jan-10 480.0 0.00%Feb-10 480.0 0.00%Mar-10 470.0 -2.08%Apr-10 480.0 2.13%May-10 440.0 -8.33%Jun-10 440.0 0.00%Jul-10 460.0 4.55%Source: Fund Manager Report

Fund Manager point of view

PCM NAV increased 4.95 per cent in July as compare to its benchmarkincrease of 4.94 per cent during this time. Amongst the top holdings,Engro, PPL, POL, FFC, PSMC and HUBC outperformed, while Packages,Kapco, ABL and ICI underperformed the market. Overall equity exposureincreased to 57.04 per cent compared to 53.41 per cent a month earlier.Exposure in Chemicals was added, while that in food producers (Nestle)was offloaded during the month.

PAKISTAN CAPITAL

MARKET FUNDIn fixed income portfolio, Masood Textile [Pref Shares} wasreduced to 3.64 per cent from 5.62 per cent. TFC portfolio ofthe Fund remained unchanged at 9.87 per cent, while T-billscomprised 23.81 per cent of the portfolio.

Top Holdings

Engro CorporationPakistan PetroleumPakistan Oil FieldFauji Fertilizer Company LimitedPackagesKot Adu Power CompanyPakistan Suzuki Motor CompanyAllied Bank LimitedSource: Fund Manager Report

29


Key Facts

Fund Manager MCB Asset Management

Fund Type Money Market

Fund Launch\ Date 1 October, 2009

Performance Benchmark Average 3M deposit rates of AA and above

rated Scheduled Banks, net of expense

Initial Public Offer Rs 100

Front End Load Nil

Management Fees 10% of Gross Earnings

Fund Size (mn) Rs 8,350

NAV Rs 100.9070

Fund Rating AA (f) by PACRA

Trustee CDC

Auditor A.F Ferguson

Investment Objectives

To provide unit-holders competitive returns from a low risk portfolio of

short duration assets while maintaining high liquidity.

Return on Fund

MCBCMOF (%) Benchmark (%)

July Return 11.2 5.4

Year to Date Return 11.2 5.4

Since Inception 10.9 6.1

Monthly Annualised MCB-CMOF (%) Benchmark (%)

Returns

Jan-10 11.50 7.30

Feb-10 10.7 7.20

Mar-10 11.10 7.20

Apr-10 11.30 7.40

May-10 9.40 4.30

Jun-10 10.70 7.40

Jul-10 11.20 5.40

Asset Size

Fund Size (Rs in mn) % Growth MoM

Jan-10 6,834.0 47.57%

Feb-10 6,822.0 -0.18%

Mar-10 6,756.0 -0.97%

Apr-10 7,949.0 17.66%

May-10 7,269.0 -8.55%

Jun-10 6,525.0 -10.24%

Jul-10 8,350.0 27.97%

Source: Fund Manager Report

MCB CASH MANAGEMENT

OPTIMIZER FUND

Performance Review

During the month, the fund increased its exposure signifi-cantly in government papers to around 81 per cent with afocus on short tenor papers in order to reduce its duration.The fund's exposures to TDRs were reduced during themonth amid a) maturities of previous placed TDRs b) lack ofattractive opportunities post-June.

30

World StocksInvestors’ Guide

World stocks in July 2010

Mostly moved upInvestors Guide Research

Regional economic recovery once again came back on thetrack. Sequential real GDP growth in the current fiscalyear once again seems to rebound sharply from slow-

down. The surging retail sales and industrial production reflect-ed strengthened domestic demand. The positive momentum hasboosted business and consumer confidence further. Meanwhile,the unemployment rates have also stabilised, despite being atrecent peak levels. External activities, however, continuedunderperforming with no signs of a turnaround to positivegrowth in the near terms.

India's benchmark stock index Sensex 30 climbed by 0.95 percent, led by real estate developers and automakers, amid expec-tation that rising incomes and the nation's economic growth willboost profitability. Foreign investors purchased a net $5.8 bil-lion of Indian stocks in June and July, making up half of the$11.7 billion going to the region's developing markets exclud-ing China and Malaysia. The massive foreign buying was due toexpectation that India's $1.2 trillion economy may expand 9.4per cent in year, the fastest pace since 2007.

China stocks rallied by sending the benchmark index up onthe likelihood that government may relax its policy tighteningmeasures which ultimately spurred gains for the nation's bankand property companies. The Shanghai Composite indexdeclined 23 per cent this year, the worst performer among thebenchmark Asian gauge. However, it recovered strongly in July2010 and posted 9.97 per cent returns during the month.Moving forward towards Asian countries, Sri Lanka andPakistan bourses have posted 11.90 per cent and 8.20 per centrespectively.

Nikkei gained 1.65 per cent during the month of July asexporters were also hurt by a stronger yen after the dollar hit aneight-month low against the yen, extending earlier losses.

On the flip side, US stocks posted significant gains of 7.08 percent as monthly job data and consumer company results paint-ed a more promising picture for the recovery.

Taiex (Taiwan benchmark index) surged by 5.88 per cent, asTaiwan's export once again started to pick up, due to strongdemand from china resulting trade deficit into surplus at the endof the month.

Going forward, it is previewed that economic indicators

would further improve across the globe. It is likely that demandpressure may retain inflationary pressure, which would ulti-mately force central bank to push policy rate upwards.

Source: Reuters Source: Reuters

Performance of Regional

indices in July10

Country Indexes July10 Return (%)Sri Lanka COLOMBO 11.90%China SHANGHAI 9.97%Pakistan KSE100 8.20%U.S.A DOW JONES 7.08%U.K FTSE 100 6.94%Taiwan TAIEX 5.88%Indonesia JAKARTA 5.34%Hong Kong HANG SENG 4.48%South Korea KOSPI 3.59%Malaysia KUALA LUMPUR 3.57%Japan NIKKEI 225 1.65%India SENSEX 30 0.95%

31

StocksInvestors’ Guide

Performance of KSE in July 2010

Investors' Guide Research

Karachi stock market gained 8.20 per cent (797 points) inJuly10, the first month of FY10, mainly due to continuedforeign interest, buying in E&P, Fertilizer and Power sec-

tors, expectations of good corporate results and higher internation-al oil prices. However, selling from government institutionsadversely affected the market sentiments. The benchmark, KSE100-index, closed at 10,519 points at the end of the month.

The month started with the positive note despite of implementa-tion of capital gains tax from 1st July onwards, as almost all thenegative factors already incorporated in last fiscal year. Averagedaily ready volume fell by 11.4 per cent to 69.0 million shares ascompare to 77.8 million shares in last month. Foreign investorswere mainly on the buying side as according to the NCCPL figuresthere was a net foreign buying of $42.4 million in July10.Moreover, news regarding introduction of leverage productworked as a catalyst for the market.

Among the sectors, Cement, Power, E&P, Fertilizer and Bankingoutperformed the index. Cement dispatches rose by 9 per cent inFY10 despite of the fact that export cement dispatches down 1 percent in FY10; however it was domestic cement demand which roseby 15 per cent in last fiscal year. Both market leaders in cementstocks - DG Khan Cement and Lucky Cement gained 18.42 percent and 12.01 per cent respectively.

In Power sector, Hub Power Company outperformed the index ascompany had posted returns of 12.70 per cent against the KSE 100-Index return of 8.20 per cent. The significant gain in stock priceswas due to anticipation of better-than-expected result, owing tohigh tariff structure, currency depreciation and bonus issued byWapda.

In Fertilizer sector the entire three blue-chip companies movedupward as actual gas load-shedding was lower than initially esti-mated by the government, as a result all the three major fertilizerproducers posted above-expectation results in 1HCY10. FaujiFertilizer Bib Qasim market price appreciated by 13.06 per cent ascompany had posted EPS: Rs1.88/share as compare to consensusresearch estimates of EPS: Rs1.65/share. Market prices of theshares of Engro Corporation and Fauji Fertilizer Company appre-ciated by 10.13 per cent and 9.17 per cent respectively.

Going forward, it is previewed that unexpected increase in dis-count rate and flood situation will keep the market in pressure. Theimpact of flood will first be reflected in agriculture as around $1.5billion worth of crop estimated to have been damaged which willresult in contraction in GDP growth to 3 per cent from initial esti-mates of 4.5 per cent. Moreover, it is seen that economic indicatorswould further deteriorate in FY11 as impact of flood will increasegovernment borrowing, food inflation and will ultimately widentwin deficit. However, on the flip side, foreign aids plus foreigninflows will ease liquidity position and also help manage fiscaldeficit.

Money Market In an unexpected move, State Bank of Pakistan raised the dis-

count rate by 50 basis points to 13 per cent from 12.5 per cent forAugust-September 2010, due to fiscal and inflation pressures. Thisfirst increase in policy rate since November '08, comes after a 250basis points easing cycle and is somewhat surprising as more than90 per cent of market participants expected discount rate to remainunchanged. It is expected that increase in the discount rate wouldenhance the lending rates in the country and would slow down pri-vate sector credit demand further. However, how effectively thismove would be in pulling the aggregate demand down to containinflation remains a question mark.

Restraining the fiscal deficit at announced target of 4 per cent ofGDP for FY11 seems challenging mainly due to meeting the taxcollection target of Rs1,667 billion that would require a 25.6 percent growth which seems unlikely to achieve in current circum-stances. Furthermore, delays in committed external fund would putpressure on external accounts' sustainability.

Earlier during the month, long-term interest rates moved higherwith some downward pressure at the shorter end, leading to steep-ening of the yield curve, given indication of increase in discountrate. However, later on, prior to monetary policy announcement thegovernment has rejected all the PIB yields, which indicated nochange in discount rate.

During the month under review, State Bank of Pakistan has con-ducted T-Bills auction twice a time with a total target of Rs185 bil-lion against the maturity of Rs174 billion. But this time maximumparticipation was seen in short term paper due to higher inflationconcerns ahead. Going forward, auction target for 1st quarter FY11(July - September, 10) was announced with pre auction target ofRs535.0 billion against maturities of Rs500 billion.

June2010 July 2010 % Chg

3MT-Bills 12.1036 12.1036 0bps6MT-Bills 12.3029 12.3707 7bps12MT-Bills 12.4188 12.4568 4bps

June 2010 July 2010 % Chg

1M KIBOR 12.45 12.39 -6bps3M KIBOR 12.29 12.33 4bps6M KIBOR 12.37 12.42 5bps9M KIBOR 12.64 12.70 6bps1Yr KIBOR 12.72 12.76 4bps

FOREIGNERS BOOSTED INDEX

Source: KSE website

32

FeatureInvestors’ Guide

Investors Guide Monitoring

All asset management compa-nies (AMCs) have informedtheir unit-holders that gain on

sale or redemption of investmentunits would be liable to capital gaintax (CGT). Most of the AMCs havedispatched letters to their unit-hold-ers in this regard.

According to a copy of letter issuedby one of the AMCs, CGT is alsoapplicable on any gain earned byinvestors in all mutual funds at therates specified in Division VII - Part Iof the First Schedule of the IncomeTax Ordinance 2001. Accordinglyasset management companies havebeen given the responsibility to with-hold CGT at source at the rate of 10per cent for holdings of less than sixmonths, 7.5 per cent for those ofmore than six but less than twelvemonths and zero per cent for holdingsof more than one year on redemption,transfer, conversion/merger of units.Furthermore, any capital lossesaccrued during the tax year can beadjusted against gains earned in thesame year by the investors.

Meanwhile, the Federal Board ofRevenue (FBR) has issued compre-hensive procedure for computation of

capital gain tax (CGT) on shares trad-ing at the stock exchanges to clarifyissues related to acquisition and dis-posal dates of shares. The FBR draftrules have clarified issues pertainingto date of securities acquisition, theirdisposal, holding period, derivativeproducts and miscellaneous issueswith respect to buying and selling ofshares at the stock exchanges.

According to the proposed rules,where requisition of securities(including letter of rights, units ofmutual funds, securities in physicalform) has taken place on trading plat-forms (including Platform for OffMarket Transactions) provided bystock exchanges, the date of settle-ment of the relevant trade shall betaken as date of acquisition and bro-ker's bill shall be the conclusive evi-dence of such acquisition. Where thetitle in the securities is not acquiredphysically through trading platformsprovided by stock exchanges, thedate on which the name of transfereeis recorded in the share certificateshall be taken as date of acquisition.

In case of initial public offerings,including the shares offounders/sponsors where securitiesare on electronic form with the date

of receipt of securities into CDCAccount of the person, and whereshares are in physical form, the dateon which the company registers theperson as its shareholder, shall betaken as dates of acquisition.

The rules further said that wherethe securities are bonus shares, thedate of receipt of such shares in elec-tronic form into CDC Account of theperson and where shares are in phys-ical form, the date on which the com-pany registers the person as its shareholder in respect of such bonus sharesshall be taken as date of acquisition.

In case of securities being "rightshares" the date of receipt of suchshares in electronic form into CDCAccount of the person and whereshares are in physical form, the dateon which the company registers theperson as its shareholder in respect ofsuch "right shares", shall be taken asdate of acquisition. In case of securi-ties being units of an open-end mutu-al fund, the date of acquisition shallbe, the date of purchase/conversionin/transfer in/switching in of suchunits. Certified statement of accountprovided by asset management com-pany shall be the conclusive evidenceof such acquisition.

Modus OperandiLevy of CGT

33

FeatureInvestors’ Guide

In case of securities being "letter ofrights" the date of receipt of such let-ter of rights in electronic form intoCDC Account of the person andwhere letter of rights is in physicalform, the date on which the companyregisters the person as entitled to suchletter of rights, shall be taken as dateof acquisition.

In case securities have beenacquired on account of nominationunder section 80 of the CompaniesOrdinance 1984 under bequest orinheritance, the date of acquisitionshall be the date of death of the per-son making such nomination or suchbequest as the case may be.

Where securities are acquiredthrough a gift in an electronic form,date of transfer of such securities toCDC account is received in a physi-cal form, the date on which suchsecurities are entered against thename of such donee in time registerof share holders of the companythrough such endorsement in the

share certificates, shall be taken asthe dates of acquisition.

In case securities have beenacquired under stock option schemefor employees of a companyapproved by SECP, the date on whichthe option is exercised shall be takenas date of acquisition. In case ofderivative products, date of entry intopurchase contract or sale contract ofthe financial instrument shall betaken as date of acquisition. The pro-cedure regarding "date of disposal" ofshares revealed that in case disposalof securities (including letter ofrights, securities in physical form andunits of mutual funds) has taken placeon trading platforms (including plat-form for Off Market Transactions)provided by stock exchanges, thedate or settlement of the relevanttrades shall be taken as date of dis-posal and broker's bill shall be con-clusive evidence of such disposal.

In case, title in the securities inphysical form has been transferred atthe end of the register of shares, thedate on which name of transferee isrecorded in the share certificate shallbe taken as date of disposal. In case

of securities being units of an openend mutual fund, the date or redemp-tion/conversion out/transfer out/switching out of such units, shall betaken as date of disposal and certifiedstatement of account issued by assetmanagement company shall be theconclusive evidence of such disposal.

In case of derivative products, dateof exit from purchase contract or salecontract of the financial instrumentshall be taken as date of disposal.Highlighting the 'holding period', therules said that where contract for thepurchase and sale of securities is peri-odically or ultimately settled by theactual delivery the period betweenthe date of acquisition and date ofdisposal shall be reckoned as theholding period.

In case of derivative products theperiod between the date of entry intocontract of purchase or sale and dateof exit from contract of purchase orsale shall be taken as the holdingperiod. In case securities not traded

on trading platforms (includingPlatform for Off MarketTransactions) provided by stockexchanges, the period between dateof acquisition and date of disposal,shall be taken as the holding period.

The securities held for a period 182days and for a period of 365 daysshall be taken as held for six monthsand one year respectively. The securi-ties held for less than one day shall betreated as held for less than sixmonths. About the derivative prod-ucts, the rules said that for the pur-pose of section 37-A, "derivativeproduct" means financial contractstraded on stock exchanges ofPakistan that do not necessarily settleperiodically or ultimately by the actu-al delivery of securities and includeFuture Contracts Options, Swaps andContract of Right etc.

The rules further said that themethod to determine date of acquisi-tion of different/various securities,disposed of, for the purpose of deter-mination of holding period to beemployed consistently shall be "firstin first out". To determine the cost ofacquisition of securities the method

to be employed consistently, at theoption of the person holding suchsecurities, shall be either "MovingWeighed Average Cost method" or"Specific Identification Cost methodon FIFO basis".

The profit made on sale of bor-rowed shares shall be treated as capi-tal gain when such shares areacquired for their return to authorisedintermediary. Period interveningbetween acquisition and disposal ofsuch borrowed shares shall determinethe "holding period" in which thecapital gain or loss fails. "Specificidentification method" shall be usedto determine the acquisition cost andconsideration for disposal of suchsecurities. The difference betweencost of acquisition and considerationreceived against disposal (net off allborrowing costs) of such shares shallbe treated as capital gain or loss. Thisrule shall he applicable to the securi-ties borrowed in accordance with the"Securities Lending and Borrowing

Scheme" approved by Securities andExchange Commission of Pakistan.

The profit made on disposal ofshares acquired under margin financescheme, margin trading scheme orother financing/leverage schemesapproved by Securities and ExchangeCommission of Pakistan shall betreated as 'capital gain'. The differ-ence between cost of acquisition(inclusive of borrowing cost) andconsideration received against dis-posal of such shares shall determinethe quantum of capital gain or loss.

The FBR has further specified thatonly express and specific exemptionsin respect of income from 'capitalgains' as provided under the secondschedule to the Income TaxOrdinance, 2001, shall apply for thepurposes of taxation of income from'capital gains' arising from disposal ofsecurities. The loss suffered on dis-posal of securities during the periodof a tax year shall be set off againstcapital gains from disposal of securi-ties during such tax year, irrespectiveof the period of holding of such secu-rities in such tax year, the draftincome tax rules added.

In case of securities being units of an open end mutual fund, the date or

redemption/conversion out/transfer out/ switching out of such units, shall be

taken as date of disposal and certified statement of account issued by asset

management company shall be the conclusive evidence of such disposal

34

MTS DELAYED,STEAM DENIED

KSE awaits return of leverage products


The dissenting note on the pro-posed margin trading system(MTS) by the chairman KSE,

Zubyr Soomro is yet to be reviewedby the BoD which was due to meet on26th but owing to non-availability ofdissenter in the town it was post-poned indefinitely.

The observations of Mr Soomroraised eyebrows in stock fraternityand most of the key market playersincluding member directors havetermed his apprehensions overcau-tious and turned down any lack oftechnicality in proposed MTS.

The contents of the chairmanSoomro's dissenting note included:No counter party risk assessment asno pre-trade disclosure; use of sharesin blocked account; risk management;the default process; legal framework-contractual obligations and antimoney laundering related issues.Chairman Soomro's emphasis on thelast - anti money laundering (AML) -- issues ran thus: "Given the interna-tional focus on anti-money launderingissues and our own recent legislationon this, we should ensure that the pro-posed product is in compliance withthe letter and spirit of these require-ments," said the note, adding: "Thefact is that counter-parties will not beknown at the time that credit isextended to them. How then can AMLdue diligence be done on them beforeexecution of the transactions?"

A letter signed by the five brokerdirectors rebuffed chairman's state-ment that he was abroad and couldnot study the proposal. "The excuse isnot valid since the MT concept paperhad been in discussion since October2009," the directors wrote, adding:"His stance that till he is satisfiednothing move betrays an attitudeproblem and reflects that he has noteven read Articles of Association,which states that all decisions taken

by majority in the Board meeting willbe carried and respected."

The letter of member directorsunequivocally stated that the "obser-vations of the chairman do not meritpoint-wise reply because he does notseem to understand the basic dynam-ics of the capital market" say the fivesignatories to the letter adding: "Touse a fashionable phrase of moneylaundering and concerns thereof, heseems to be unaware that 'no' investorcan operate at the exchange withoutUIN which is allotted by the NCCPLafter getting CNIC information of theaccount holder verified from Nadra."

In a separate letter to the DirectorSECP, the five KSE member direc-tors respond to the apex regulator'sletter dated Aug 16 asking for "com-ments on Chairman's dissent note."The broker directors stated that theKSE chairman's concerns completelyignored the expert committee's reportwherein all issues had been debatedand resolved.

The directors asserted that the KSEmanagement had given a detailedpresentation in the meeting on July26 where the proposal was approvedby majority. The brokers remindedthe SECP that the MTS proposal wasfirmed up by the Experts Committeeformed by SECP and headed bydirector (SE). The concept paper waslater sent to all exchanges, CDC &NCCPL for comments. The KSEBoard had decided by a majority vote

in favour of the concept paper. Butthe sting of the broker directors' letterto the SECP was in its tail: "What issurprising is that SECP, as the apexregulator is giving an indication thatit is either not supporting the conceptof MT or it is bent upon delaying it."

The launching of the proposed lever-age product of Margin Trading System(MTS) will increase the turnover andvalue of traded shares at the localbourse manifold, analysts said. Theysaid that the absence of ready boardleverage facility was the main reasonfor declining turnover at the localbourse. It is worth mentioning here thatthe KSE board of directors hadapproved the proposal of MTS.However, the KSE Chairman ZubyrSoomro expressed reservations withthe proposed product of MTS approvedby the KSE board of directors.

Given the scuffle within the board,several major investors at the marketthought that the MTS which had beenunder the limelight since October2009 might be delayed but it wasunlikely to be denied. Everyoneagreed that the episode had placed theapex regulator - SECP-- in an uncom-fortable position. In a recent develop-ment, a meeting was held betweenbroker directors and the chairmanwho participated through tele-talkfrom his hometown. Experts areterming this move a positive signwhich may take the issue towards res-olution.


35

SHOCKING FACTS

World's tinniest investor base in stocks and mutual funds

Shiraz Ahmed

It is viewed with proud that ourstock market became best per-forming market in 2002 and 2008

while it was ranked 5th best per-former in last fiscal year whichshowed that it has strong fundamen-tals but main drivers for momentumare not merely strong fundamentals.There are several other factors mostimportantly economic and politicalwhich actually steer the movement ofthe benchmark either downward orupward.

Recently very strange facts and fig-ures were highlighted by some reportsabout stock market trading. Mostimportant of them is that there are 40registered traders, identified throughunique identification number (UIN),who control nearly 60 per cent tradingand investing in stock market. Allthese accounts are benami (nameless)which could not be identified on per-sonal basis. Such accounts are alwaysa cause of concern for genuine tradersbecause such accounts have morecontrol in the market in terms of brin-ing selling pressure or buying spree inthe market.

Similarly, there are nearly 1,35,000UIN out of total 2,70,000 whichactively trade in the market and thispercentage is less than 0.01 per centof total population of the country.Moreover, the 40 most influentialtraders who control 60 per cent of thetrading and investing are merelyridiculous 0.03 per cent of active UINand next to none or 0.014 per cent oftotal registered UIN in the CDC. Thisshows the gloomy picture of investorbase in the stock market and this situ-ation is more or less equal to mutualfunds clients which collectively stand2,50,000 in the country if their dupli-cation in various funds is taken intoaccount.

If these counts are compared with30 million bank depositors inPakistan, it became clear that bothstock market and mutual fund compa-nies have failed to attract investors. Itsmain reason may be some rightfulconstraints including a relatively

complicated procedure of investing inthem. In banks one has to visit thepremises and get open the account ofany kind. For this purpose onlymoney and CNIC is required apartfrom some minor conditions. But incase of stepping in stock market andmutual fund industry first of all onehas to be aware on them and there-after should have proper knowledgeto utilise these services. Moreover,opening of account is not less compli-cated but one would not start invest-ing in them unless one has completeknowledge of how much he would ormay gain in investing in stocks aremutual funds.

According to analysts, the investorbase is more or less stagnant for thepast decade despite the fact that theKSE-100 Index, the key barometer ofthe market activity, has jumped bymore than ten times since 2001. Itcrossed the psychological barrier of15,000 points to make an all time highof 15,737 on April 20, 2008.

"We aren't comparing ourselveswith the developed markets like theUSA where every third person investsin stocks. Even India and Bangladeshhave an investor base of 5 million andtwo million investors' respectively."said one analyst.

In third world countries, shortsight-edness is main feature of the mindsetwhich equally plays its role in invest-ment decision. Every one needs quickbut huge returns and mostly is devoidof long-term vision as far as returnsare concerned. This is the main reasonwhich aroused majority of the popula-tion in the country to invest in realestate which is neither a regulatedmarket nor it has any centralisedmechanism for buying and selling.Moreover, the fears of forgery andillegal occupation are attached withreal estate business but despite ofthese facts people feel comfortable toinvest in real estate and are still scaryto step in stocks and similar types ofinvestment.

ArticleInvestors’ Guide

36

An audacious launchAH Dow Jones SAFE Pakistan Titans 15 Index Fund unveiled

Mujtaba Baig

Agenerous Iftar-dinner was the hallmark of the ceremony to launchthe AH Dow Jones SAFE Pakistan Titans 15 Index Fund (AHD-JPF) in a five start hotel during a cloudy evening of Ramadan and

some eyebrows discernibly raised and some whispers termed the arrange-ment superfluous on the back of gloom prevailing in society due to floodhavocs. But in his keynote speech Nasim Beg, Chief Executive of ArifHabib Investments blew out the concerns of cynics and helped eyebrowsretreat by announcing that the amount equal to expenses of launch cere-mony would be donated for flood relief apart from other contributions byArif Habib Group. He kicked off a new fund by setting a new example ofkeeping beautiful balance between professional commitment and person-al responsibility.

Narrating the main features of the newly launched fund, he said thatAHDJPF will employ a passive management approach to replicate theperformance of the constituents of Dow Jones SAFE Pakistan Titans 15Index. The Fund will invest all or substantially all, of its assets in securi-ties that make up the target index. Excess cash, if any, may be kept indaily-return bank deposits or short-term money market instruments. TheFund is not allowed to take leveraged investment positions. This fundalso provides a low cost exposure to a portfolio primarily holding blue-chip liquid stocks selected on the basis of free-float market capitalization.

He said that its offering would be made as soon as flood water recedesand market settles and expressed hope that within three months this willbe held out for subscription to public. He further said that if one wants tosell the units of AHDJPF one would not have to go for its redemption butit can be sold to any other buyer through broker and this provision wouldbe applied for this Fund particularly to simplify the offloading mecha-nism.

"We believe that this fund will become the ideal one-window vehiclefor investing in the Pakistan stock market; it should provide ease of tak-ing Pakistan exposure for foreign investors and become a low cost vehi-cle for domestic retail investors for taking a diversified entry into the mar-ket. We intend having this open-end fund traded at the Karachi StockExchange which would enable investors to buy and sell units of the Fundand settle the transaction in a manner similar to that of buying and sell-ing shares, with delivery at the Central Depository Company", he added.

In his key note speech Arif Sultan, Business Development Director ofDow Jones Indexes, Singapore said that Dow Jones SAFE PakistanTitans 15 Index is a free float-adjusted market capitalisation based indexcomprising of fifteen Pakistani stocks. The index is a subset of 15 largestand liquid stocks (as measured by one-year average daily trading volumein the Dow Jones SAFE (South Asian Federation of Exchange) 100 Indexwhich captures performance of 50 larges stocks from India and 50 largeststocks from Pakistan Bangladesh, Sri Lanka and Mauritius. The index atpresent constitutes 15 stocks, which comprises 57 per cent of the overallmarket capitalisation of KSE-100 Index. The allocation is divided in sixmajor sectors of the equity market including Oil and Gas Producers(38.08%), Banks (30.78%), Chemicals (20.29%), Electricity (5.46%),Construction & Materials (3.96%) and Financial Services (1.43%).

It may be pointed out here that Arif Habib Investments Limited (AHI)under a licensing agreement with CME Group Services LLC haslaunched its first Index Tracker Fund - AHDJPF. According to AHI, theIndex Fund will provide investors a very low cost solution to investing inselect (most liquid) Pakistani stocks, the (simulated) price performance ofwhich has historically been highly correlated with the performance of thebroader KSE-100 Index.

Big NewsInvestors’ Guide

37

Sukuk widely eyed in westIslamic finance in world

ViewsInvestors’ Guide


Many western financial insti-tutions are seriously consid-ering the option of invest-

ment in Sukuks after the recent crisisin financial markets of the west whichbrought on collapse of many giantinstitutions especially tailspin ofLehman Brothers has shaken the con-fidence of European investors on con-ventional financial system, said ArifSultan, Business DevelopmentDirector of Dow Jones Indexes,Singapore.

Talking exclusively to Investors'Guide in soft launch ceremony of AHDow Jones SAFE Pakistan Titans 15Index Fund in a local hotel recently hesaid that South Asia has immensepotential for growth of Islamic bank-ing and finance and Pakistan lead thequeue in this regard and tremendousgrowth potential is still there despiteexponential growth in Islamic financein a slight span of one decade which isrecord itself. He said that Malaysia isflagship of Islamic financial institu-tions as far as growth and expandedoutreach is concerned while MiddleEast countries have also vastly adopt-ed this mode of financing which is notonly Sharia-compliant but it offerssafe and reasonable returns to alltypes of investors.

It may be mentioned here thatSukuk is the Arabic name for finan-cial certificates, but commonly refersto the Islamic equivalent of bonds.Since fixed income and interest bear-ing bonds are not permissible inIslam, Sukuk securities are structuredto comply with the Islamic laws andits investment principle prohibits thecharging, or paying of interest.Financial assets that comply with theIslamic laws can be classified inaccordance with their tradability andnon-tradability in the secondary mar-kets.

Arif Sultan further said that bookson Islamic financing are being trans-lated into Japanese language becauseJapanese society is so keen to adoptthis system of finance which is anample proof of the fact that Islamic

financial system is for the entirehumanity regardless of religion orsect. He said that it is very incorrect topresume that main initiators ofIslamic financial system are westernfinancial institutions. He said that thissystem of financing has been originat-ed from Asia and now it is expandingtowards every direction of the globeand western financial institutions arevery keen to adopt this system offinance.

Since the launch of Islamic equityfunds in the early 1990s, there hasbeen the establishment of credibleequity benchmarks by Dow JonesIslamic market index (Dow JonesIndexes pioneered Islamic investmentindexing in 1999) and the FTSEGlobal Islamic Index Series. The Website failaka.com monitors the per-formance of Islamic equity funds andprovides a comprehensive list of theIslamic funds worldwide.

It may be pointed out that Sharia-compliant assets reached about $400billion throughout the world in 2009,according to Standard & Poor's

Ratings Services, and the potentialmarket is $4 trillion. Iran, SaudiArabia and Malaysia have the biggestSharia-compliant assets. In 2009Iranian banks accounted for about 40per cent of total assets of the world'stop 100 Islamic banks. Bank MelliIran, with assets of $45.5 billion camefirst, followed by Saudi Arabia's AlRajhi Bank, Bank Mellat with $39.7billion and Bank Saderat Iran with$39.3 billion.

In Malaysia, the National ShariaAdvisory Council, which has been setup at Bank Negara Malaysia (BNM),advises BNM on the Sharia aspects ofthe operations of these institutionsand on their products and services. InIndonesia the Ulema Council serves asimilar purpose.

A number of Sharia advisory firmshave now emerged to offer Shariaadvisory services to the institutionsoffering Islamic financial services.Issue of independence, impartialityand conflicts of interest have alsobeen recently voiced. The WorldDatabase for Islamic Banking andFinance (WDIBF) has been devel-oped to provide information about allthe websites related to this type ofbanking.

Sharia banking has been trying tomarket itself to investors, businessesand the general public as a crediblealternative to conventional westernbanking. At first blush, the exponentsof Islamic finance certainly have abullet-proof argument-that the reck-less risk-taking and bad decisions thattipped global banking into meltdowncould not happen under the wise lead-ership of the Sharia sector. If only itwere that simple. While internationalfinance suffered humiliating govern-ment bailouts, there is little evidencethat Islamic banking has stepped in tofill the void. But Sharia banking'ssecular cousin, the ethical bankingsector, has clearly benefited. Are themen at the top of the Islamic financetree engaging in self-criticism andcalls for rejuvenation? Is there evenmuch call from outside this elitegroup for a revolution that couldbring success?

38

AMCs yet to ventureCommodity Mutual Fund


Jameel Siddiqui

Commodity mutual funds are aninteresting, and potentiallyrewarding, way to diversify

your investment portfolio beyondstocks and bonds. That's becausecommodities are often viewed as ahedge against inflation. Meaning theprices of commodities tend to rise instep with inflation. This movementruns to counter stock prices - which isan attribute that makes commoditymutual funds so attractive to manyinvestors.

Unfortunately in Pakistan there isno any commodity based mutual fundbecause there is no regulated marketof commodities here. RecentlyNational Commodities ExchangePakistan Limited started regulatedtrading but it has long way to go. Tillthen it seems riskier to venture com-modity mutual funds in local market.

Some months back a local AMCwith an associate company of MiddleEast showed its intention to launch acommodity mutual fund. However,despite lapse of several months it hasnot yet unveiled any such fund.According to internal sources of saidAMC in near future too, it does nothave any plan to launch it and idea isstill rolling in papers.

According to mutual fund experts,after huge devastation due to floodscommodity market will remaindepressed in year or two where mostof the demand would have to be ful-filled through imports by putting extraburden on import bill. Therefore, inthis scenario it would be unwise tolaunch commodity fund and best timewould be after complete recoveryfrom flood havocs.

Some experts said even in normalmarket conditions the chances arequite bleak for the launch of commod-ity mutual fund because commoditieswill always be traded in local marketin conventional way despite presenceof commodity exchange. Most of thepeople related with commodity busi-ness are not in favour of regulatedtrading because of lack of awarenessand due to their reluctance to enter

into a registered method of trading. Generally commodities are defined

as things that tend to come from theearth or are grown. This includesgrains, minerals and metals, livestock,cotton, oils, sugar, coffee, and cocoa.Some of the more common commodi-ties traded on the exchange includecrude oil, cotton, gold and wheat.

Commodities are traded in the spotmarket or in the form of futures con-tracts. Spot market trades are madefor immediate delivery. For example,energy could be traded on the spotmarket and delivered immediatelyinto the electrical network. Whentrading on the spot market, physicaldelivery of the commodity often takesplace.

Commodities traded as futures arecontracted for a "future" deliverydate. Most investors in the commodi-ty market trade in futures contractsand many of these contracts are soldbefore the contract expires. Thatmeans the average investor nevertakes physical delivery of the com-modity itself, rather they are lookingto make money on their investmentthrough the changes in the commodi-ty's value over time.

Traditionally, many investors work-ing in the commodities futures marketinvest using a margin account. Whenusing a margin account the investormight only need to invest 5 per cent ofthe contract's total worth to hold it.While this approach creates windfallprofits for some, the added risk pro-duces many losers too.

Commodity Index FundsWhenever there is a need in the

market, smart people are quick to fillthat void. In the same way that tradi-tional mutual funds allow investors tocreate portfolios of common stocks orbonds, commodity mutual funds giveinvestors the option of adding com-modities to their portfolio and limitthe risk associated with the commodi-ties market.

Alternatives to Commodity FundsThe alternative to commodity mutu-

al funds is to create your own portfo-lio of mutual funds that invest in com-panies that are in the commodity busi-ness. For example, in western coun-tries you can invest in gold mutualfunds, natural resource mutual funds,oil companies, and other energyfunds. Fidelity's Select IndustrialMaterials is a mutual fund of compa-nies in the chemicals, metals, andbuilding materials industry.

Pros and Cons of Investing inCommodity Funds

Commodities offer portfolio diver-sification. Investing in futures con-tracts or actual commodities providesa portfolio component that is not a tra-ditional stock, bond, or a mutual fundthat invests in stocks and/or bonds.Historically, commodities have had alow correlation to traditional equitymarkets, meaning that they do notalways fluctuate in tandem with mar-ket movements. For many investors,achieving this low correlation is theprimary objective when seeking toadd diversification to a portfolio.

39


SECP for reporting dubious transactions to FMU

Tough measures

in hard timesTanzeel-ur-Rehman

Securities and ExchangeCommission of Pakistan hasrecently issued instructions to

all the exchanges and clearings houseto report the suspicious transactions'reports (STR) and currency transac-tion reports (CTR) to its FinancialMonitoring Unit.

The apex regulator took this stepunder Anti Money LaunderingRegulations 2008 and directed theKSE, LSE, ISE, CDC, NCCPL,NECL to submit details of STR andCTR to FMU. It may be noted that theAML regulations define that it is jus-tifiable to suspect any customer whois reluctant to provide normal infor-mation and documents required rou-tinely by the financial institutions inthe course of the business relation-ship.

However, market players havetaken this step of the chief regulatorwith reservations and said that instressful times for stock markets andeconomy as a whole it is quite irk-some to declare details for those whointend to avoid limelight while put-ting their money in various sources offund. A renowned stock broker saidthat owing to fragile law and ordercondition many big investors havestarted hiding their identification dueto fear of outlaws and if regulatorforces to show their identity they mayshift their money from local market toother regional markets.

Transactions that do not make eco-nomic sense, for example a customerhaving a large number of accountswith the same financial institution,transactions in which assets are with-drawn immediately after beingdeposited, transactions that cannot bereconciled with the usual activities of

the customer, transactions involvinglarge amounts of cash and transac-tions involving structuring to avoidreporting or identification require-ment fall under the ambit of suspi-cious transactions, must also bereported to the FMU. Market sourcesalso said that many investors haveamassed wealth through speculativetrading during the days of stock boostin local market. They have removedtheir previous accounts from booksand now registered themselves asfresh investors in automated tradingsystem but now they are quite scary tosee strict regulatory regime of theSECP and are planning to withdrawtheir investment from the local mar-ket.

An analyst said that those who earnblack money could not be trapped soeasily because mostly black-moneyholders are powerful people and anyauthority could not investigate theirsources of wealth unless green light isgiven to them from top notch of thecountry. He alleged that still there aremany big fish in the market who areworking as proxy of some politicaltycoons and no one has courage to

identify that person or his or her mas-ter-financier.

Transfer of money abroad by aninterim customer in the absence ofany legitimate reason, repeated trans-fers of large amounts of moneyabroad accompanies by the instruc-tions to pay the beneficiary in cashhave also been suspicious. Such caseswere unofficially quoted in the marketbut people try to avoid such incidentsand most people believe that aftersome deal such dubious investors mayagain be holding control on stocktrading in the market.

In recent move, the stock exchangeshave been asked to report transactionswith complete details, such as pur-chasing of securities to be held by thefinancial institution in safe custody,where this does not appear appropri-ate given the customer's apparentstanding; requests by a customer forinvestment management serviceswhere the source of funds is unclearor not consistent with the customer'sapparent standing; large or unusualsettlements of securities transactionsin cash form and buying and selling ofa security with no discernible purposeor in circumstances which appearunusual.

Experts said that if apex regulator isreally serious to pinpoint such ele-ments who have dubious sources ofincome and nature of their transac-tions also arouse suspicion then actionmust be taken against such elementwithout any duress and no discrimina-tion should be applied while dealingwith such elements. It is generally feltin the market that some most power-ful persons of present setup are direct-ly involved in equity markets throughtheir stooges and all developments aremade on their instigation which isquite worrisome for the market.

An analyst said that those

who earn black money

could not be trapped so

easily because mostly

black-money holders are

powerful people and any

authority could not

investigate their sources of

wealth unless green light

is given to them from top

notch of the country

40


Adnan Hussain

World's mutual fund industryhas hit the mark of $23 tril-lion assets under manage-

ment which showed the acceptability ofthis mode of investment moving upgradually because of volatility in stockand bond markets all around the world.According to reports, before the adventof mutual funds at global scenario thewidely adopted mode of investmentwas stock markets and real estate butthe series of crash in world bourses andsubprime crisis has shifted the globalfocus to mutual funds which is treatedas a rational and judicious way ofinvestment where greed and anxietyhave narrow room to stay put.

Financing for stock trading has alsodecreased to a significant level becausenow investors have not so much confi-dence on rising index which has morethan once shattered their confidenceand brought on collapse of several bigfinancial giants like Lehman Brothersand AIG. This is the main reasons thatnow every third Amercian and sixthBritish has some part of his or herinvestment in mutual funds while age-ing manpower mostly prefer to investin pension funds to make their post-retirement life free from financial wor-ries. According to a social scientistfragile family norms is another factorwhich forces ageing manpower of thewest to fret over their lives after retire-ment and at the age of fifty their invest-ment strategy mainly focuses on pen-sion funds. Because of growing yuppieculture in western world workers donot rely on institutional pensionschemes because they keep on switch-ing over job during their whole work-ing lives. Therefore, they keenly investin mutual fund based pension fundswhich guarantee a handsome monthlyamount on regular basis after theirretirement. On the other hand, in thirdworld countries where cultural valuesstill dominate despite crack in familysystem, majority of ageing people plan

to rely on their offspring especially theboys after retirement and whatever theysave they spend it for the education ofsons and marriage of daughters.Despite of this, there is a class of urbanold-timers who now came to realise thecollapsing family system and planmonetary self-sufficiency after theirretirement. Government servantsreceives pension from governmentafter retirement but rising inflation anddemanding life style has made thisamount of pension insufficient to spenda decent life after retirement and theyhave to partially rely on their childrenfor their financial needs especiallymedical ones. Due to provision of lowquality basic needs including food,water and residence older people sufferfrom diseases earlier than the previoustimes when clean air and clean waterwas not hard to find because of lowcongestion in living areas and highstandard of municipal services.

However, it seems that our popula-tion has yet to realise the importance ofsaving for life after retirement becausetheir working life has so much worriesto cope with them and therefore, peopledon't have time to think about future in

the long-term. This is the reason thatthey reach the brink of old-age and theydon't have enough to spend their endingtime with financial peace and have nooption but to depend on their children.

In this scenario there is pressing needto make people aware on importance ofsaving for the long-term to protect theirpost-retirement life with regular disbur-sal of handsome amount as return oftheir life-long investment. For this pur-pose mutual fund companies shouldalso devise long-term marketing strate-gies to publicise their pension fundsand develop their features in easy tounderstand dialect for the comprehen-sion of common man. Another impor-tant point is that entire target audienceof pension funds does not live in cities,there is a sizeable population of ageingpeople who live in small towns and vil-lages and are self-employed who caneasily invest a handsome amount regu-larly to make their old age free fromfinancial stress. But unfortunately ourmutual fund companies do not havethis level of long-term vision to popu-larise a significant mutual fund whichactually focuses the social wellbeing ofan important segment of the society.

SOCIAL ASPECT OF

MUTUAL FUNDS

41



Stock market's crashes of 2005and 2008 are not distantmemories while big tum-

ble in real estate during thefirst tenure of PPP govern-ment and recently prevailingslowdown are also enough toshake confidence of retailinvestors to try their luck inboth the sources of invest-ment. Against the backdrop ofless returns of bankdeposits and low realinterest rate of NSS andmutual funds' depressed profitmargins there is no any otheroption for the experiencedretail investors but to either gofor stocks or real estate.

In the opinion of leading invest-ment experts, both markets are goodbut the investment objectives andone's sources of income determineone's choice. Another investmentconsultant concurred, saying that thechoice of any form of investment willdepend on many factors.

During present times of politicaluncertainty and directionless eco-nomic management one wonders toopt for real estate because of integralflaws in its market which is unregu-lated in Pakistan. On the other handpersistent lackluster in stock marketis another fear factor to put money inthis avenue. But one can not afford tokeep one's money in state of disuse.Therefore, it is necessary to make itsdetailed comparison to go either way.

PerformanceBased on performance and rate of

return, stocks can be good. As a stan-dard parameter the long-term returnsof real estate is 3 per cent a year in anormal market while that of stocks is9 per cent to 10 per cent. If we see theprevious fiscal year's performancestocks gained 35 per cent while realstate stayed flat. Therefore, both inlong and short-term stocks offerreturns better than real estate.

LeverageThe option of financing is available

in stock market and one can gain byinvesting the financed money in

stocks if market is upward. However,if market goes down he has to face

multiple losses one is capitalloss and other one is interest

on financed money. Inhousing finance howev-er, the situation is not

so volatile. It happensrarely that prices ofreal estate go down inshort-term.

T h e r e f o r e ,housing finance can

be good option for beginnersto enhance their investment base inreal estate.

CostStocks trade for a transaction cost of

within one per cent of total buy or sellas brokerage commission, and fundscharge 1 per cent or lower of yourinvestment account. Real estate trans-actions can run you 2 per cent to 5 percent of your home's sale price withfees covering appraisals, inspections,processing, title insurance, creditreport checks, transfer tax, agentcosts, moving costs and the like.

TaxesStocks have a short-term capital

gain tax rate of 7.5 to 10 per cent. Youcan also offset your stock gains byyour losses. But check out real estatetax breaks: you can deduct propertytaxes at the time of buy; you canclaim the rebate for capital value taxif the size of your property is lessthan prescribed limits.

TransparencyHow well do you know your invest-

ment? How accessible, real and tan-gible are they to you? It appears thatin the world of stocks and real estate,they each have their pros and cons.Ultimately, you'll just have to trustthe information available about thatpiece of property or that company'sofferings when you take out themoney to make your purchases. Duediligence can tip the scales in your

favour but doesn't erase the risksinherent in any investment.

EffortIt's clear that maintaining a stock

market portfolio is far easierthan running to and fro to

your rental property mak-ing sure that repairs arebeing done. On top of

that, with real estate you'llhave to deal with the

human factor as well,where you'll have tonegotiate with tenants

who may or may not give youa hard time. Likewise, fear of illegaloccupation always hovers on you inpresent scenario of real estate worldin big cities especially Karachi.

Stocks market investments hold ahigher liquidity value and are there-fore easier to sell in comparison tothe real estate investments. They arealso more flexible and can be trans-ferred to a retirement account.

The second big advantage of stocksmarket investments is that rate ofturnover they can generate in a year ismuch higher if the financial positionof the company is stable. Some of thestocks also bring in huge profit assome companies have an averagegrowth rate of 20 per cent or even 50per cent.

Real estate investment also hasgreat benefits, such as tax deductionsand continuous appreciation rates ofproperties. Land is one tangible assetthe value of which continues toappreciate with time. Therefore, realestate investment usually generatesconsistent turnover every year.Sometimes due to regional growththe property rates are doubled withinyears and fetch the investor's hugeprofits.

To conclude, stock market invest-ments usually are more advantageousthan real estate investments in certaincategories. Although, real estateoffers greater stability and tax reliefbut stock market investments cangenerate huge profits in lesser timeand offer greater flexibility in termsof liquidity. It is advisable to makeyour decision keeping in considera-tion your financial position.

Stocks or Real EstateInvestment Option

42


Maybe, you are hedgingTauseef Ahmed

No one is immune from risk.Therefore, everyone is cau-tious of it. Even when we take

a single step, we analyse all kinds ofrisk while doing so. It means risk isingrained in every venture especiallythe business one. Either to go this wayor that way, it sometimes becomesdilemma to decide. Ultimately youprove to be a judicious decisionmaker and adopt any one of the pathsbut keeping the chance to follow theother quite open.

However, in business and invest-ment you have broad options.Simultaneously you can adopt two orseveral tracks. This is the benefit ofbusiness ventures either it is tradingor investment you can make a goodmix of several options. When youadopt at least two ways hoping to off-set the loss from one if the second onedoes not give you a profit, this iscalled hedging.

The best way to understand hedgingis to think of it as insurance. Whenpeople decide to hedge, they are insur-ing themselves against a negativeevent. This doesn't prevent a negativeevent from happening, but if it doeshappen and you're properly hedged,the impact of the event is reduced. So,hedging occurs almost everywhere,and we see it everyday. For example,if you buy house insurance, you arehedging yourself against fires, break-ins or other unforeseen disasters.Portfolio managers, individualinvestors and corporations use hedg-ing techniques to reduce their expo-sure to various risks. In financial mar-kets, however, hedging becomes morecomplicated than simply paying aninsurance company a fee every year.Hedging against investment-riskmeans strategically using instrumentsin the market to offset the risk of anyadverse price movements. In otherwords, investors hedge one invest-ment by making another.

Technically, to hedge you wouldinvest in two securities with negativecorrelations. Of course, nothing inthis world is free, so you still have topay for this type of insurance in oneform or another.

How Do Investors Hedge?For the most part, hedging tech-

niques involve using complicatedfinancial instruments known as deriv-atives, the two most common ofwhich are options and futures. We'renot going to get into the nitty-gritty ofdescribing how these instrumentswork, but for now just keep in mindthat with these instruments you candevelop trading strategies where aloss in one investment is offset by again in a derivative.

Let's see how this works with anexample. Say you own shares of ABCCorporation. Although you believe inthis company for the long run, you area little worried about some short-termlosses in the industry. To protect your-self from a fall you can buy a putoption (a derivative) on the company,which gives you the right to sell at aspecific price (strike price). This strat-egy is known as a married put. If yourstock price tumbles below the strikeprice, these losses will be offset bygains in the put option.

The other hedging exampleinvolves a company that depends on acertain commodity. Let's say ABCCorporation is worried about thevolatility in the price of cement, theplant used to make big quantity ofproducts. The company would be indeep trouble if the price of cementwere to skyrocket, which would eatinto profit margins severely. To pro-tect (hedge) against the uncertainty ofprices, you can buy a futures contractthat allows the company to buy the

share at a certain price. Now you canbudget without worrying about thefluctuating commodity.

Hedging Advantages vs. ForwardCash Contracting

Hedging allows flexibility to laterselect the appropriate physical deliv-ery point. This may be important forproducers with several buyers com-peting for the grain or oilseed.

Hedging provides the flexibility toreverse a market position because ofchanges in crop growing conditions,changes in the condition of storedgrain, or changes in price outlook.Once a forward cash contract commit-ment is made, it may be difficult tocancel or to alter. A position in thefutures market can be terminated byoffsetting the position. Financial com-pensation, of course, must be made forany adverse price change occurringwhile the futures position was held.

Hedging can greatly reduce theexposure to price risk. It is an impor-tant marketing tool for establishingprice while retaining considerablemarketing flexibility. However, hedg-ing does not guarantee a profit. Thehedging decision must still take intoaccount production costs and marketoutlook. For many producers, decid-ing when to hedge is one of the mostdifficult aspects of marketing. Anunderstanding of market alternativessuch as hedging can help avoid suchproblems and lead to a more success-ful grain marketing program.

43


Jameel Siddiqui

Impersonated as unaware intend-ed investor when this scribe con-tacted various mutual fund com-

panies of the country to start investingwith Rs2,00,000 plus per month addi-tion of Rs40,000 all the companiescontacted for this purpose replied dif-ferently and offered funds of differentfamilies. Like an associated AMC ofrenowned brokerage firm insisted meto invest in an income fund, while anarm of one of the five top banks of thecountry offered an income and growthfund for investing. Similarly anIslamic bank's associated AMC invit-ed my investment in a mix of equity,liquidity and cash funds. But the mainfocus was not my investment objec-tives but to sell their products by hookor crook. Such behavior usually de-motivates intended investors to step inmutual funds.

Therefore, keeping in view of infor-mation provided by AMCs it is neces-sary that a person intended to invest inmutual funds must assess the risk fac-tor in each fund apart from seekingdetailed information on previous per-formance and asset allocation of theconcerned fund.

There is some degree of risk in everyinvestment. Although it is reducedconsiderably in mutual fund investingbut can not be avoided at all. Do notlet the specter of risk stop you frombecoming a mutual fund investor.However, it behooves all investors todetermine for themselves the degreeof risk they are willing to accept inorder to meet their objectives beforemaking a purchase. Knowing ofpotential risks in advance will helpyou avoid situations in which youwould not be comfortable.Understanding the risk levels of thevarious types o mutual funds at theoutset will help you avoid the stressthat might result from a thoughtless ora hasty purchase.

Let us now examine the risk levelsof the various types of mutual funds.

LOW-LEVEL RISKSMutual funds characterized as low-

level risks fall into here categories1. Money market funds2. Treasury bill funds

3. Insured bond fundsMODERATE-LEVEL RISKS

Mutual funds considered moderate-risk investments may be found in atleast the eight types categorisedbelow.

1. Income funds2. Balanced funds3. Growth and income funds4. Growth funds5. Short-term bond funds 6. Intermediate bond funds 7. Insured government/municipal

bond funds8. Index funds.

HIGH-LEVEL RISKSThe types of funds listed below have

the potential for high gain, but all havehigh risk levels as well.

1. Aggressive growth funds2. International funds3. Sector funds4. Specialized funds5. Precious metals funds6. High-yield bond funds (taxable

and tax-free)7. Commodity funds8. Option fundsLOW-LEVEL RISK CONSERV-

ATIVE PORTFOLIO50 per cent govt treasury bill funds50 per cent money market funds

MODERATE-LEVEL RISKCAUTIOUSLY AGGRESSIVE

PORTFOLIO40 per cent growth & income funds30 per cent govt bond funds20 per cent growth funds10 per cent index funds

HIGH-LEVEL RISK AGGRESSIVE PORTFOLIO

25 per cent aggressive growth funds

25 per cent international funds25 per cent sector funds25 per cent high yield bond funds

MEASURING RISKAs you become a more experienced

investor, you may want to examineother, more technical, measures todetermine risk factors in your choiceof funds.

Beta coefficient is a measure of thefund's risk relative to the overall mar-ket. For example, a fund with a betacoefficient of 2.0 means that it is like-ly to move twice as fast as the generalmarket - both up and down. High betacoefficients and high risk go hand inhand.

Alpha coefficient is a comparison ofa fund's risk (beta) to its performance.A positive alpha is good. For example,an alpha of 10.5 means that the fundmanager earned an average of 10.5 percent more each year than might beexpected, given the fund's beta.

Interest rates and inflation rates areother factors that can be used to meas-ure investment risks. For instance,when interest rates are going up, bondfunds will usually be declining, andvice versa. The rate of inflation has adecided effect on funds that are sensi-tive to inflation factors; for example,funds that have large holdings inautomaker stocks, real estate securi-ties, and the like will be adverselyaffected by inflationary cycles.

The information is supplied heremerely to acquaint you with the termi-nology in the event you should wish todelve more deeply into complex riskfactors. The more common risk factorspreviously described are all you reallyneed to know for now, and perhaps foryears to come.

One caveat is in order, however.There is no such thing as an absolute-ly 100 per cent risk-free investment.Even funds with excellent 10 year pastperformance records must include intheir literature and prospectuses thefollowing disclaimer: "Past perform-ance is no guarantee of future results."However, by not exceeding your risktolerance level, you can achieve awide safety and comfort zone withmutual fund portfolios such as thoseshown above.

Become your own advisorInvesting in mutual funds

44


Tanzeel-ur-Rehman

Protecting the long-term value ofyour investments means using avariety of investments. As an

investor, you're interested in investingyour money wisely. But what is the bestway to invest? For this purpose yourage factor counts a lot.

It's difficult to know which funds willoutperform other funds at any giventime. Therefore, you adopt a sensible,time-honored investment strategy that'seasy to understand and easy to put intopractice. It's called diversification.

Diversification means spreading yourmoney over a variety of investmentopportunities instead of betting thebank on one potentially high-flyingstock. Stocks often get more attention

than the other asset categories, butbonds and stable value instruments arealso popular with many investors. Let'sreview the options:

StocksWhen you own stock, you own a part

of a company. The risks can be high,but so is the potential for return.

BondsBonds are the IOUs of the investment

world. Businesses and governmentsissue bonds and promise to return yourprincipal to you plus interest. The risksare generally lower than stocks and sois the potential return.

Stable value instrumentsMoney markets, usually viewed as

having "stable" or steady returns, fallinto this category. Such funds are con-sidered less risky than either stocks orbonds. But lower risk has its price; inthe case of money market funds, thelong-term potential return is lower thaneither stocks or bonds.

Some mutual funds contain elementsof all three categories. A blended fundmay contain stocks, bonds and stablevalue instruments. The exact mix ofholdings in a blended fund may varyfrom month to month depending onwhether the fund's managers see abrighter future for stocks or bonds.

So, it turns out diversification is pret-ty simple. You just need to hold a littlebit of everything -- using funds thathold stocks, bonds and money markets.You need to hold investments thatmatch your particular goals. And yourgoals can vary depending on your age,your accumulated wealth and yourinclination to take greater risks forpotentially greater returns.

Youngsters on the blockYoung investors with small invest-

ment accounts generally feel morecomfortable taking risks if those riskscome with the potential for greaterreturns down the road. As long-terminvestors, they know that interest ratechanges come and go, and that, eventhough the past is no guarantee offuture results, the stock market has his-torically provided positive returns. Notsurprisingly, many youngsters buildportfolios composed entirely of stockfunds.

Middle of the roadPeople in their 30s and 40s often tend

to incorporate bond and/or money mar-ket funds into their investment portfo-lios. They like having their money instocks, but they also appreciate thelower risk of other investment vehicles.And they count on the power of com-pounding to add to their retirement nesteggs. Younger, more aggressive MiddleRoaders might build 60/40 portfolios:60 per cent stocks, 40 per cent bonds.

Investors who are closer to retirementoften turn the percentages around andhold 40 per cent stocks and 60 per centbonds.

Asset preservationistsPeople who are retired or close to

retirement tend to "play it safe," espe-cially when compared to youngsters.They realise that stocks can rise and falldramatically, and they're also awarethat they have less time to recover frommarket losses. Often, the pleasure ofwatching stock prices rise is overcomeby their dissatisfaction when prices fall.As a result, this group tends to favourbonds and money market funds morehighly than stocks, often removingstocks from their portfolios entirely.

Keep in mind that these are onlyexamples. For instance, some young-

sters like to include bond funds in theirportfolios. They know the power ofcompound interest helps them morethan older investors, so they look morefavourably on "low-powered" invest-ments that carry less risk. At the otherend of the scale, some asset-preserva-tionists keep some of their money instock funds. In recent years, they havebenefited from their participation in thestock market, even if their portfolioswere heavily invested in bond andmoney market funds.

In short, the best diversification strat-egy for you is the one you're most com-fortable with. Form a plan that makessense to you, and keep in mind yourcomfort level when it comes to risk.Most of all, remember you're investingfor the long haul. You don't have tokeep your finger on the pulse of themarket all the time, unless, of course,you're invigorated by all the hustle andbustle.

Your age and portfolio

45


Shiraz Ahmed

The role of any public sector insti-tution is to perform its duties inaccordance with the mandate

given to it by the government. Publicsector organizations have become ametaphor of inefficiency and bad gov-ernance. Their annual losses are com-monplace figures and everybodyknows how much nation has to pay forthe poor performance of such institu-tions. The debate to either privatisesuch organizations or to restructurethem had faded away because of dilem-ma of decision makers to come onsame page in this regard.

Unfortunately there are also somegovernment organisations which arenot in the category of loss-making pub-lic sector entities but their existence isalso for nothing and a sizeable chunk ofbudget is allocated for the recurringexpenditures including salaries, petrol,allowances and office expenditures.Such organizations have nothing to dowith the mandate assigned by the gov-ernment to them.

These organisations have a fixed andlimited agenda of work which is strict-ly tedious and stereotyped with nothinginnovative and new for the result-ori-ented efforts.

Board of Investment is an organisa-tion mandated by the government topromote and bolster investment inPakistan. According to its website, BoIis facilitating local and foreigninvestors for speedy materialisation oftheir projects. BoI is doing its best toattract foreign investors to Pakistanthrough a most liberal investment poli-cy, said the website.

Its outdated website said that the BoIassists companies and investors whointend to invest in Pakistan as well asfacilitates the implementation andoperation of their projects. A widerange of services provided by the BoIinclude extending information on theopportunities for investment and facili-tating companies that are looking forjoint venture partners.

The BoI acts as a focal point of con-tact for prospective investors, bothdomestic and foreign to provide themwith all the necessary information andassistance in coordinating with other

government functionaries. The BoI alsoevaluates applications of investors forthe work and business visas, branchliaison office and security clearance.

However, if we cast a pragmatic lookat the performance of BoI, the aboveclaims of the BoI are not noticeable likemost of government departments usual-ly make such claims to brush up theirperformance and be noted by theirhigh-ups. But in this particular case onewould be shocked if the website con-tents of the BoI are thoroughly exam-ined.

Thanks to unchanged nature of someinitial information given under the win-dow of Investors' Guide at the websiteof BoI which informs the reader aboutthe basic information of Pakistan likearea, population and cultural mix whichremain unchanged at least since thecensus is not made. Apart from it, mostof the information available under thishead is outdated and portrays an oldpicture of the various sectors of theeconomy.

Like data about financial sector is ofbefore 2006 which means the robustgrowth shown by our financial sectorbefore the mid of 2008 has not beenmentioned which has strength toimpress the foreign investors.Similarly, five key reasons mentionedto urge the foreigners to invest inPakistan are devoid of empirical evi-dence and even fall short of concretearguments to prevail upon the foreign-

ers to come forward and pour in theirfunds in various sectors.

Interestingly, most of the data is des-titute of any statistical support andarguments and if there is any argumentin any contents that too lacks strengthwhich depict how haphazardly the taskof content development of the websitewas made and how unskillfully it waspresented. It shows that either BoI lackprofessional staff or it has nothing to dowith professionalism.

The Chairman of BoI, Mr SaleemMandviwala is a well known person ofbusiness world but experts said thatowing to lack of support from govern-ment and from within the organisationhe is helpless to take ahead the agendaof investment promotion in Pakistan.Lack of infrastructure is anotherimpediment of BoI and its provincialchapters seem to be workingautonomously at provincial level with-out keeping proper coordination withthe head office.

Experts said that in a country whichdesperately needs both foreign andlocal investment in huge number it isvery necessary that its investment pro-motion agenda be clearly defined andimmaculately implemented. For thispurpose an autonomous body on thelines of a private sector organisationmay serve the purpose because the per-formance of existing body BoI maycarry some weight but on-ground reali-ties are indicating otherwise.

Baseless BoI

46



To err is human and to forgive isdivine. This famous sayingencourages people to go ahead,

to take steps and to bring change eitherat individual level or collective one; beit political, financial or social but it ischerished by all if it is for the broadergood of all. However, in financialworld mistake has its own cost. It notonly leaves a lesson for the future but italso makes you suffer some losseseither these are tangible or intangiblebut their financial worth can not beignored.

When it comes to investing there arelots of ways to get it wrong, but if youavoid these five blunders then youshould do just fine. While the secret toinvesting is to buy low and sell high,you also need to remember there are noguarantees when it comes to investing.

Strategy firstDesigning an investment strategy is

similar to designing a house. You wantto start with a solid foundation, thenyou can start building the walls androof, rather than worrying about whattype of window frames you shouldhave.

What are your wants and needs?When do you want to retire? What kindof income do you need? Once youknow these answers you can start todevelop an overall investment strategy.You can determine how much moneyshould be invested in "growth" assets(property

& shares) and how much should beinvested in "income" assets (fixedinterest & cash). Once you have got the

asset mix sorted out you can choose thebest investments in the various cate-gories.

Branch out broadly

A lack of diversification is a commonmistake made by investors; so don't putall your eggs in one basket. The turmoilin the financial market has highlightedthe perils of a lack of diversification formany investors. Putting Rs20,000 intofive different finance companies is notdiversification.

If you have a mix of investments,such as property; shares; fixed interestand cash you are more likely to evenout your investment returns over time,even if your investments are affectedby short-term volatility in a particularsector.

Dig out details

Investing blindly is asking for trou-

ble. Do your homework.

A lot of investors will spend more

time planning their holiday on the inter-

net, than researching their investments

or an advisory firm.

A good place to start learning more

about finance and investment is

through online tutorial websites.

For more investment information,

sites such as www.secp.gov.pk,

www.mufap.com.pk or

www.kse.com.pk also provide a valu-

able source of information.

Remain unfazedGreed and fear are two emotions that

drive investment decisions. Peopleneed to understand the differencebetween investing and speculating.Many investors in local stock marketduring the crash of 2005 were specula-tors. They bought and sold shares incompanies without knowing whatthose companies actually did.

Good investing requires self-disci-pline and a long-term perspective. Itmeans not getting greedy when marketsare booming and not getting spookedwhen markets are falling.

A common mistake is selling out ofinvestments when they experience atemporary correction.

Over time, markets will have periodswhere they go through dips. What wealso notice during these times is thelarge lift in trading volumes which indi-cates that one group of investors is sell-ing out at low prices to another groupthat is only too happy to buy a bargain.It's better to be happy bargain hunterthan a depressed stock-dumper.

Do somethingThe biggest mistake is failing to

invest at all. Returns from shares andproperty have typically outperformedfixed interest investments, and yet peo-ple often think investing is "all too dif-ficult" so they don't do anything. Also,people who start investing early in lifeenjoy the benefits of compound interest.

Before you regret

Greed and fear are two

emotions that drive invest-

ment decisions. People need

to understand the difference

between investing and spec-

ulating. Many investors in

local stock market during

the crash of 2005 were spec-

ulators. They bought and

sold shares in companies

without knowing what those

companies actually did.

47

Company & Industry News

NewsInvestors’ Guide

PRL FY10 lossesat Rs2.97bn

Pakistan Refinery Limited (PRL)posted loss after taxation of Rs2.97 bil-lion in financial year 2010 as againstRs4.57 billion in financial year 2009,translating in to loss per share ofRs85.01 in contrast to Rs130.62 earlier.

The company has announced itsfinancial result for the year ended June30, 2010. Though the result was disap-pointing, yet the company managed toreduce losses. Beside negative grossrefinery margin of 0.82 per cent, PRLfaced low off-take during the yearbecause of circular debt, financing cost,and higher turnover tax.

PQFTL declares 15pcsurplus

Pak-Qatar Family Takaful (PQFTL)has declared a surplus of 15 per cent forits individual customers for the finan-cial year 2009-10. This was announcedby CEO of PQFTL, PAhmed followingthe meeting of Shariah SupervisoryBoard which was chaired by Justice (R)Mohammad Taqi Usmani. Surplus,which is an inherent benefit of Takaful,is calculated as per the amount availablein the Waqf Fund after paying off all theclaims and meeting all the expenses forthe year. The company will share thesurplus amount with the IndividualTakaful participants on the basis of theircontribution in the Waqf Fund.

NIB Bank suffersRs9.2bn losses

NIB Bank posted unconsolidated lossafter tax of Rs9.2 billion (LPS: Rs0.48)for the first half ending June 2010(1HCY10) as against loss of Rs7.1 bil-lion (LPS: Rs014) for the correspon-ding period last year. This disappoint-ing performance can be attributed tocolossal rise in provisioning and per-sistent hike in administrative expenses.

Administrative expenses grew toRs3,216 million in the six months fromRs2,566 million a year ago. The pointto be noted is that the bank's totalincome for 1HCY10 was Rs1,049 mil-lion and its administrative expensesexceeded Rs3,216 million. The situa-tion was not precarious for 1HCY09because total income was Rs3,447 mil-

lion, enough to take care of administra-tive expenses amounting to Rs2,566million.

IMC FY10 profitsup 149pc

Indus Motor Company Limited(INDU) recorded a staggering 149 percent surge in its net earning to Rs3.44billion for the year ending June 2010 ascompared to Rs1.38 billion during thepreceding year. The company saw 49per cent jump in its sales and rise of148 per cent in other income during theyear, according to the company's finan-cial results. Earning per share stood atRs43.81 as against Rs17.62. IndusMotor announced final cash dividendof Rs10 per share for the financial2010. This is in addition to interim div-idend of Rs5 per share, bringing annualtotal payout to Rs15 per share.

Bank Alfalah postsRs492mn profit

Bank Alfalah (BAFL) posted a netprofit of Rs492 million in the quarterended on June 30, 2010 against Rs 661million in the same quarter of last year,showing a negative growth of 25.6 per-cent. The net profit translated into earn-ings per share of Rs 0.36 in the quarterunder review against Rs 0.49 in thesimilar quarter of last year. However,earnings-before-tax of Rs 749 millionin the said quarter was up 1.4 per centyear on year (YoY) because effectivetax rate in the same quarter of 2009 wasmuch lower at 10.5 per cent against34.3 percent in the 2nd quarter of 2010.The half year ended on June 30, 2010indicated that the bank's net profit wasdown by 2.8 per cent to Rs 1.079 bil-lion against Rs 1.109 billion in thesame period of last year.

KESC reportslower losses

Loss-after-tax of Karachi ElectricSupply Company (KESC) has declinedto Rs14.641 billion during the yearending on June 30. According to finan-cial results of the company dispatchedto Karachi Stock Exchange, loss-before-tax also dropped to Rs14.737billion as loss per share stood atRs0.74.

PTCL securesRs9.294bn net in FY10

Pakistan TelecommunicationCompany Limited (PTCL) has postedRs9.294 billion net profit in financialyear (FY) 2009-10 against Rs9.151 bil-lion in the same period of last year.

The company's earnings per sharealso rose to Rs1.82 in the year underreview against Rs1.79 in the previousyear. The company's revenue, howeverdepicted three per cent decline toRs57.174 billion against Rs59.239 bil-lion in the last year whereas cost ofservice rose to Rs38.258 billion againstRs37.732 billion in the last year.

Al-Ghazi announcesdividend

Al-Ghazi Tractors Ltd has posted arecord profit after tax of Rs997.805million for the half year ended June 30,2010 and declared an interim dividendof Rs7.5 per share. According to infor-mation reaching KSE, the pre-tax prof-it of the company also jumped toRs1.567 billion as compared toRs1.337 billion in the correspondingperiod last year. The earning per shareclimbed to Rs23.24 in June 2010 asagainst Rs20.46 in June 2009. Al-Ghazi's sales surged to record Rs8.455billion in six months.

NBP, FABL, AKBLpost results

National Bank of Pakistan (NBP)and Faysal Bank Limited (FABL) post-ed results below than expectationwhile Askari Commercial BankLimited (AKBL) announced resultsnear expectations. National Bank ofPakistan, posted Rs7.82bn profit in thefirst half of current calendar year(1HCY10) as against Rs6.28bn in thesame period last year (1HCY09),bringing earning per share to Rs5.81 ascompared to Rs4.67 previously. Profitafter taxation of Faysal Bank Limitedrose 271pc to Rs1.73bn in this periodover Rs467mn in the comparable peri-od, resulting in to earning per share ofRs2.85 as compared to Rs0.77.Earnings of Askari Bank Limited grew22pc to Rs714mn in 1HCY10 (EPS:Rs1.13) over Rs585 million in1HCY09 (EPS: Rs0.95).

48



PPL pursues to buy BP

Pakistan Petroleum Limited (PPL)despite being a public sector entity isattempting to manipulate the purchaseof British Petroleum through the back-door and maneuvering the sale for itspartner Eni, an Italian exploration andproduction company.

Sources in the Ministry of Petroleumtold that PPL also exploiting its clout toinfluence on the purchase of the assetsof Petronas Carigali (Pakistan) Ltd inthe same manner. It's worth mentioninghere that Petronas has failed to operatethe venture after securing license forexploration. Thus, both ventures beingoffered for selling out are under hugefinancial strain and it would remain ahuge concern for any interestedbuyer(s) in regard with the status of allthese liabilities, sources said.

Fatima Fertiliser eyesNYSE listing

Fatima Fertilizer is planning to issueADR (American Depositary Receipt)to be listed in New York StockExchange (NYSE) by the end of 2010.In this regard, Bank of New YorkMellon is assisting the firm. This willbe an offer for sale of shares by thesponsors, as per analyst briefing ofcompany.

Al Meezan declarescash dividend

The Board of Directors of Al MeezanMutual Fund Limited and Al MeezanInvestment Management Ltd. (AlMeezan) declared final cash dividendat 8.5 per cent i.e., Rs0.85 per share forAl Meezan Mutual Fund Limited and5.5pc i.e., Rs0.55 per certificate forMeezan Balanced Fund (MBF), says apress release.

Unilever earningsdown 3.3pc

Unilever Pakistan Limited hasrecorded net profit of Rs1.18 billion inthe first half ended June 30, 2010 asagainst Rs1.22 billion in the same peri-od of previous year.

The company's earning per share alsodeclined to Rs89.3 as compared toRs92.27 showing a 3.3 per cent

decrease, according to the financialresults of the company.

SBP drawing newMFB plan

State Bank of Pakistan is working ona new 'strategy' for microfinance bankswith a greater focus on 'inclusive finan-cial services' that will enable them tocope with emerging challenges. Thenew strategy will emphasise upon theindustry to strengthen its fundamentalsby developing infrastructure requiredfor sustainable and inclusive growth.

"The new strategic framework isintended to help the sector get back onits growth trajectory while stressing onnew initiatives in the areas of depositmobilisation, up-scaling loan sizes,developing partnerships, and encourag-ing successful provincial / regionalMicrofinance Banks (MFBs),", saidacting Governor SBP, Yaseen Anwer ina meeting held recently.

Modarabas'registration fee raised

The Securities and ExchangeCommission of Pakistan (SECP) hasraised the registration fee for ModarabaCompanies from Rs150,000 toRs250,000, while annual renewal feehas been raised from Rs10,000 toRs25,000.

According to the latest amendment inthe Modaraba Companies andModaraba Rules, 1981 notified inAugust, 2010; the non-refundable reg-istration fee has been raised toRs250,000 while renewal annually inthe month of January has been raisedby 150 percent to Rs25,000.

SECP effects CCPproposal

The Securities and ExchangeCommission of Pakistan (SECP) hasincorporated changes suggested by theCompetition Commission of Pakistan(CCP) in the code of corporate gover-nance.

SECP chairman Salman Ali Shaikhhas written a letter to the CCP chairper-son that it has given due considerationto the competition concerns raised inthe CCP policy note and that the formerunderstands the need to discourage any

entry barriers that may lead to the cre-ation of a monopoly and prevent com-petition in the market.

PSEs to issueconvertible bonds

The Privatisation Commission hasdecided to re-launch the convertiblebonds proposal to strengthen PublicSector Entities (PSEs) to generate addi-tional revenue for the government,which is currently under severe finan-cial constraints due to the devastationcaused by the floods.

The proposal of the convertiblebonds is aimed at turning the Rs265 bil-lion loss making public sector units intoRs500 billion profitable units, aspokesman of the commission said onFriday.

Housing plan maycatch big FDI

Federal Minister for Housing andWorks, Rehmatullah Kakar has saidthat German and Canadian construc-tion companies have showed willing-ness to invest $8 billion in housing sec-tor under Prime Minister HousingPlan.

The Minister said President ofGerman Jiaklien Company Klanfelterand Canadian Stardeor during a meet-ing said that their companies will par-ticipate in the construction of housingunits in Pakistan under Prime Ministerhousing scheme by investing $8 bil-lion.

FFC to buy 79.85pcshares of Agritech

Fauji Fertiliser Company (FFC)intends to acquire 79.85 per cent sharesof Agritech Limited. Habib BankLimited has been appointed as manag-er to offer as required by the statute.

According to a notice sent to KarachiStock Exchange (KSE), HBL informedthat its client FFC intends to acquireshares of Agritech Limited under theListed Companies (SubstantialAcquisition of voting Shares and Take-overs) Ordinance, 2002 and ListedCompanies (Substantial Acquisition ofVoting Shares and Take-over)Regulations, 2008 (collectivelyreferred to as "Statute").

49



Change ofAHBL name

The State Bank of Pakistan (SBP) hasissued notification for change of nameof Arif Habib Bank Limited to SummitBank Limited. According to announce-ment in exercise of the powers con-ferred on State Bank of Pakistan (SBP)by clause (c) of sub-section (2) ofSection 37 of the SBP Act, 1956; SBPis pleased to notify the change of nameof "ARIF HABIB BANK LIMITED"to "SUMMIT BANK LIMITED" witheffect from August 18, 2010.

NAFA launches twonew funds

NBP Fullerton Asset ManagementLimited (NAFA), formerly NationalFullerton Asset Management Limited,has launched two open-end fundsnamely NAFA Riba Free Savings Fund(NRFSF) and NAFA Asset AllocationFund (NAAF). The Initial Public Offerof NRFSF and NAAF began on the16th of August and lasted on 20th ofAugust 2010.

NRFSF is a Sharia-compliant Incomescheme with the objective of providingpreservation of capital and earning areasonable rate of return along with ahigh degree of liquidity. The Fundinvests in Sharia-compliant instrumentshaving a minimum credit rating of AA-and place deposits with Islamicbanks/Islamic windows of commercialbanks having a minimum credit ratingof A. NRFSF will not invest in Sukuksor the Stock market. The Fund carriesno entry or exit load.

JCR-VIS assignsratings to ABL funds

JCR-VIS Credit Rating CompanyLtd (JCR-VIS) has assigned prelimi-nary fund stability rating of AA+(f)(Double A plus (f)) to ABL Cash Fund(ABL CF) and AA(f) (Double A (f)) toABL Islamic Cash Fund (ABL ICF).

The ABL CF fund aims to invest inmarket treasury bills, term deposits,money market placements and reverserepos (underlying security being mar-ket treasury bills).

The ABL ICF fund aims to invest ingovernment guaranteed Sukuks, cashand bank deposits, Sharia-compliant

instruments including COIIs, COMs,CODs and other Sharia-compliantavenues as per guidelines of the fund'sShariah advisor.

SECP suspendscos' trading

The Securities and ExchangeCommission of Pakistan (SECP) hasordered suspension of trading in theshares of listed companies that are incontinual violation/ non-compliance ofsecurities market laws, initially for aperiod of 60 days or till further orders.

The SECP taking cognisance of thefact that such companies not only poseserious threat to the development of arobust capital market but also inhibitinvestors' confidence due to lack oftransparency, in consultation with thestock exchanges, had earlier initiated acomprehensive exercise for reviewingthe status of these listed defunct/ non-compliant companies.

Moody's lowersratings of 5 topPak banks

The Moody's investor services down-graded the outlook ratings of top fivePakistani banks, including the state-runNational Bank of Pakistan (NBP), alocal English newspaper said.

The other four banks are Habib BankLimited (HBL), United Bank Limited(UBL), MCB Bank Limited and AlliedBank Limited (ABL).

"On September 2, the Moody'sinvestor services changed the long-term local currency deposit ratings andbank financial strength ratings (BFSRs)of the big-5 banks from stable to nega-tive," same newspaper quoted sayingMuniba Saeed, an analyst at InvestCapital.

"The change in the outlook of thebanks was driven mainly by the impactof flood giving rise to economic chal-lenges."

The corporate sector's recovery isexpected to be further hindered due toslowdown in the economic growth andinflationary pressures on account offood shortages and rising input prices.

The rating agency expects that higherinput prices would lead to a loss ofcompetitiveness in certain export-ori-ented sectors, especially textiles.

As per data issued by the State Bankof Pakistan (SBP), the banking sectorexposure to textiles as of June stood ateight per cent of the total exposure,however, the banking sector exposureto cumulative textiles and the cropgrowing category of agriculture stoodat 11 per cent of the total, or Rs635 bil-lion.

Also textiles being the highest bor-rower in the manufacturing segment,such dependence are likely to dent thesectors profitability, owing to increasedprovisioning requirement and resultantincreased probability of the non-per-forming loans (NPLs).

Moody's expects the banks' adequatecapitalisation levels and comfortableliquidity profiles funded mainly by cus-tomer deposits to continue to providestability amid deteriorating macroeco-nomic conditions.

PSO's dues surgeto Rs141bn

The financial woes of the PakistanState Oil (PSO) have increased mani-fold as its outstanding dues have surgedto a whopping Rs141.275 billion.

In a communication to the Ministryof Finance, PSO, the country's largestoil marketing company, receivablesstood Rs 141.275 billion on variousorganisations while its payable torefineries reached at Rs111.881 billion.

MFBs data entrytimeline altered

The State Bank of Pakistan, reducingthe data submission timeline, has askedthe microfinance banks (MFBs) to sub-mit quarterly data, within 18 workingdays from the end of each quarter. Inthis regard the central bank, referring toRegulation No 27 of PrudentialRegulations for MFBs and SBP, MFDCircular Letter No 01 dated October20, 2009, has issued OSED CircularLetter No 02 of 2010.

According to this circular, the datasubmission timeline of quarterly datafrom quarter ending June 30, 2011 hasbeen changed. MFBs will nowonward upload their quarterly datathrough Data Acquisition Gateway(DAG) portal within 18 working daysfrom the end of each quarter insteadof 30 days.

50


51


52


53


54


55


56


57


58


59


60


61

StocksInvestors’ Guide

62


63

Documents

Investors Guide - Sep 2010