Shanghai Exchange poised to take Pakistan bourse stake

Move would mark Chinese exchange’s first overseas investment and bolster China-Pakistan ties

Lucy Hornby and Farhan Bokhari, Financial Times

The Shanghai Stock Exchange is in pole position to buy a stake in Pakistan’s bourse, in a move that would mark the Chinese exchange’s first overseas investment and bolster financial ties with one of China’s closest partners.

China’s strategic links with Pakistan have intensified under President Xi Jinping, whose One Belt, One Road policy seeks to project Chinese influence abroad while alleviating crippling domestic industrial overcapacity. But China’s ambitious plans for investments in Pakistan, particularly in its troubled Baluchistan region, remain vulnerable to political instability and ethnic tensions in its southern neighbour.

Yasin Lakhani, a former chairman of the Karachi bourse who now serves on its board, said the Shanghai Stock Exchange was among three shortlisted candidates for the investment. The Securities and Exchange Commission of Pakistan [SECP] has set a November deadline for the investment.

Separately, a second director of the KSE who asked not to be named said: “Shanghai is the most likely candidate to be successful,” citing reasons including China’s planned investment of $46bn in energy and infrastructure projects in the country.

The Shanghai Stock Exchange could not be reached for comment due to the week-long holiday. The investment was first reported by the Nikkei Asian Review, which said the Chinese bourse was targeting a 40 per cent stake in the PSX for an undisclosed price.

The PSX was formed in January, and unites the Karachi, Islamabad and Lahore exchanges. There are 576 companies listed on the bourse, and its total market capitalisation is Rp8.2tn ($78.3bn).

The market’s KSE100 index has gained 25 per cent over the past 12 months, and was sitting at a record high of more than 41,000 points on Monday.

The tie-up would be the first direct overseas investment for the Shanghai Exchange, which risks being outflanked by its larger and more internationally integrated rival in Hong Kong. HKEx also owns the London Metal Exchange, giving it influence in international commodities trading and positioning Hong Kong to overshadow Shanghai, mainland China’s financial hub, in world markets.

Pakistan has emerged as a focal point in the One Belt, One Road initiative after Mr Xi led a visiting delegation in April 2015.

China’s relationship with Pakistan was further reinforced this year when Islamabad said it had finalised a contract for Beijing to supply eight new submarines to the Pakistan navy — half of which will be built in China while the other half will be built in Pakistan. Though neither side has publicly revealed the size of that contract, defence analysts said it could be worth up to $5bn, marking Pakistan’s largest defence contract to date.

Source: Financial Times

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