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Stock exchange
A stock exchange is an entity which provides "trading" facilities for stock brokers and traders, to trade
stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of
securities as well as other financial instruments and capital events including the payment of income and
dividends. The securities traded on a stock exchange include: shares issued by companies, unit trusts,
derivatives, pooled investment products and bonds.

To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a central
location at least for recordkeeping, but trade is less and less linked to such a physical place, as modern
markets are electronic networks, which gives them advantages of speed and cost of transactions. Trade on
an exchange is by members only.

The initial offering of stocks and bonds to investors is by definition done in the primary market and
subsequent trading is done in the secondary market. A stock exchange is often the most important
component of a stock market. Supply and demand in stock markets is driven by various factors which, as in
all free markets, affect the price of stocks (see stock valuation).

There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently
traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual way
that derivatives and bonds are traded. Increasingly, stock exchanges are part of a global market for

The Karachi Stock Exchange or KSE is a stock exchange located in Karachi, Sindh, Pakistan. Founded in
1947, it is Pakistan's largest and oldest stock exchange, with many Pakistani as well as overseas listings. Its
current premises are situated on Stock Exchange Road, in the heart of Karachi's Business District.


Karachi Stock Exchange is the biggest and most liquid exchange in Pakistan. It was declared the “Best
Performing Stock Market of the World for the year 2002”. As of Dec 8, 2009, 654 companies were listed
with a market capitalization of Rs. 2.561 trillion (US$ 30.5 billion) having listed capital of Rs. 705.873
billion (US$ 10.615 billion). The KSE 100TM Index closed at 9627.63 on Feb 03, 2010.



The exchange has pre-market sessions from 09:15am to 09:30am and normal trading sessions from
09:30am to 03:30pm. It is the second oldest stock exchange in South Asia. [2] The karachi stock exchange
has undergone a considerable deal of downturn partly due to global financial crisis and partly on account of
domestic troubles. It remained suspended in excess of 4 months and resumed normal trading only on
December 15, 2008. The KSE 100 Index and KSE 30 Index after hitting the low around mid january has
now rebounced and recovered 20-25% till March 12 2009.

The KSE is the biggest and most liquid exchange in Pakistan and in 2002 it was declared as the “Best
Performing Stock Market of the World” by Business Week. As of December 8, 2009, 652 companies were
listed with the market capitalization of Rs. 2.561 trillion (US$ 30.5 Billion) having listed capital of Rs.
717.3 billion (US$ 12 billion). On December 26, 2007, the KSE 100 Index reached its highest value ever
and closed at 14,814.85 points.

Foreign buying interest had been very active on the KSE in 2006 and continued in 2007. According to
estimates from the State Bank of Pakistan, foreign investment in capital markets total about US$523
Million. According to a research analyst in Pakistan, around 20pc of the total free float in KSE-30 Index is
held by foreign participants.

KSE has seen some fluctuations since the start of 2008.

Karachi stock exchange Board of Directors has recently (2007) announced plans to construct a 40 story
high rise KSE building, as a new direction for future investment.

Disputes between investors and members of the Exchange are resolved through deliberations of the
Arbitration Committee of the Exchange.

KSE began with a 50 shares index. As the market grew a representative index was needed. On November 1,
91 the KSE-100 was introduced and remains to this day the most generally accepted measure of the
Exchange. Karachi Stock Exchange 100 Index (KSE-100 Index) is a benchmark used to compare prices
overtime, companies with the highest market capitalization are selected. To ensure full market
representation, the company with the highest market capitalization from each sector is also included.

In 1995 the need was felt for an all share index to reconfirm the KSE-100 and also to provide the basis of
index trading in future. On August the 29th, 1995 the KSE all share index was constructed and introduced
on September 18, 1995.

2008 and 2009 Karachi Stock Exchange Crisis

• April 20 : Karachi Stock Exchange achieved a major milestone when KSE-100 Index crossed the
psychological level of 15,000 for the first time in its history and peaked 15,737.32 on 20 April,
2008. Moreover, the increase of 7.4 per cent in 2008 made it the best performer among major
emerging markets.[3][4]
• May 23: Record high inflation in the month of May, 2008 resulted in the unexpected increase in the
interest rates by State Bank of Pakistan which eventually resulted in sharp fall in Karachi Stock
• July 17 :Angry investors attacked the Karachi Stock Exchange in protest at plunging Pakistani
share prices.[7][8]
• July 16 : KSE-100 Index dropped one-third from an all-time high hit in April, 2008 as rising
pressure on shaky Pakistan's coalition government to tackle Taliban militants exacerbates concern
about the country's economic woes.[9]
• August 18: KSE 100 Index rose more than 4% after the announcement of the resignation of
President Pervez Musharraf but Credit Suisse Group said that Pakistan's Post-Musharraf rally in
Stock Exchange will be short-lived because of a rising fiscal deficit and runaway inflation.[10][11]
• August 28 :Karachi Stock Exchange set a floor for stock prices to halt a plunge that has wiped out
$36.9 billion of market value since April.[12]
• December 15: Trading resumes after the removal of floor on stock prices that was set on August 28
to halt sharp falls.[13]
• September 1: Due to these crisis in the market many brokers shift towards other jobs. Muhammad
Afzal (THE PACHTAWA), the big player of the market, also shifted from the Stock Market to
another job. Currently he is working in the SNL Pakistan (Pvt.) Ltd. as a Tier 1 Analyst.


• To be a leading financial institution, offering efficient, fair and transparent securities market
in the region and enjoying full confidence of the investors.


• To strive to provide quality and value-added services to the capital market in an efficient,
transparent and orderly manner, compatible with international standards and best practices.

• To provide state-of-the-art technology and automated trading operations, driven by a team of

professionals in accordance with good corporate governance.

• To protect and safeguard the interests of all its stakeholders, i.e. members, listed companies,
employees and the investors at large.

• To reflect the country’s economic health and behavior and play its role for the growth, development
and prosperity of Pakistan

Company Services

Customized services and state-of-the-art technology infrastructure, have given us an edge over other
exchanges in the region.

• Fully automated trading, clearing and settlement system.

• Internet routed trading facility.
• Gateway trading (Order Management System).
• Investors and fund managers can also access information through Display Only Terminal
• Internet trading facilities available.
• Order-driven system .
• Brokers connectivity to KSE through VPN (to ensure security of data).

Investment Climate

Equity Market

In 1991, the secondary market was opened for foreign investors on an equal basis with the local investors.
This measure along with the government policy of privatization has resulted in rapid growth of the market
since 1991. It may also be mentioned that "privatization" has bee n adopted as a philosophy and most of the
business & finance activities which were previously reserved for the public sector have now been opened
for the private sector. The change of policy is most visible in the financial sector where a number of
commercial banks, investment banks, discount houses, leasing companies, modarabas, life insurance
companies and mutual funds have been allowed in the private sector.

Liberalization policy has led to rapid deregulation of the national economy and the impediments to private
initiative have been speedily removed. Foreign exchange holdings and transfers have been liberalised,
industrial sanctioning has been done away with except for few sectors where, for strategic reasons, prior
permission of the government is necessary.

Legal Framework

• The securities market and the corporate sector are regulated by the provisions of the Companies
Ordinance 1984.
• The Securities and Exchange Ordinance 1969 and Rules framed there under in 1971.
• The Securities & Exchange Commission Act 1999.
• There are also Federal legislations relating to specific areas like

- Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970.
- Investment Companies and Investment Advisors Rules 1971.

- Modaraba Companies and Modaraba (Flotation and Control) Ordinance, 1980.

- Companies (Issue of Capital ) Rules 1996.

- Leasing Companies (establishment and Regulation) Rules 1996.

- Asset Management Companies Rules 1996.

- Insurance Companies Ordinance 2000.

- Guidelines for insiders trading.

• In addition to above, the listed companies are also subject to the Rules and Regulations of
the stock exchanges.

The Regulator

The regulatory authority for the securities market and corporate sector in Pakistan is the Securities and
Exchange Commission of Pakistan. The Commission was established on January 01,1999 by dissolving the
Corporate Law Authority which was formed in 1981 under a Special Law. The Commission administers
the compliance of the Corporate laws in the country. The Commission is run by the Commissioners under a

The Asian Development Bank's Capital Market Development Programmed envisaged the conversion of
CLA into Securities and Exchange Commission of Pakistan, as an autonomous regulatory authority. The
new system provides administrative, operational and financial autonomy to the Commission and at the
same time provides an accountability mechanism through establishment of a Securities and Exchange
Policy Board. All policy decisions are made by the Board on the recommendations of the Commission
which is also empowered to take suo motto action. The Board is directly answerable to the Parliament.

Members of the stock exchanges are also subject to the discipline of self-regulation under various Rules
and Regulations of the stock exchanges. Self-Regulation is the essence of market regulation and for this
purpose the legal framework has been amended to facilitate the attainment of SRO status by the stock

Investor Specification

The following plans and tax incentives are available to both investors and listed companies.

Foreign Investor - specific:

1. The foreign investors are freely allowed to operate in the capital market without any retention
2. There are no restrictions on the extent of foreign ownership stake and also no limit for holding the
shares for trading purposes.
3. Funds invested in the capital market are freely transferable along with dividend income.
4. Foreign investors are treated at par with local investors in tax treatment.

Local Investor specific:

1. Capital gains on sale of listed securities are exempt from income tax up to the year 2010. This
exemption is available since 1974.
2. The dividend is subject to withholding tax at 10%.
3. Dividend income is taxed as a separate block of income in the hands of individual shareholders.
4. Any income derived from TFC's is subject to income tax with effect from income year 2001 – 2002.


1. Listed companies are taxed at 35%.

2. Provident funds can now invest in approved listed securities. They are also allowed to invest in
open end mutual funds established under the Asset Management Companies Rules 1996.
3. No turnover tax is payable by companies on their turnover representing transactions in securities
listed on stock exchanges.

Investment Instruments

What to buy

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


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

Fundamental data

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

Broker forecasts

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

Directors’ information

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

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

Trade data

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

Technical analysis

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

News analysis

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

Monitoring and selling

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

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

Heat map

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

How can we measure the long term success of our investment strategy?

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

How to become a Member?

Membership of KSE is limited and fixed at 200 and prospective members have to purchase a seat from
existing members. The price of the membership seat is freely negotiable between the buyers and sellers
which varies according to the interaction of the forces of demand and supply. The KSE does not interfere
with these transactions. However, the membership is allowed subject to fulfillment of criteria and
qualification laid down by the Board.

Since June 1990, membership has been opened to corporate entities. Corporate members are required to
have a minimum paid up capital of Rs. 20 million and are also subject to criteria fixed by the Board.

The Membership of KSE is also available to foreign entities provided that the Nominee Director of the
company is a citizen of Pakistan.

Criteria for Individual Membership

Criteria for Corporate Membership
Criteria for Individual Membership

1. No person shall be eligible to be admitted as Member, if:

a. He/she is less than 21 years of age;

b. He/she is not a citizen of Pakistan;

c. He/she has been adjudicated a Bankrupt; or a Receiving Order in Bankruptcy has been made
against him/her, or he/she has proved to be insolvent even though he/she has obtained
his/her final discharge;

d. He/she has compounded with his/her creditors, unless he/she has paid hundred paisa in the

e. He/she has been convicted of an offence involving fraud or cheating or dishonesty or any
other indictable criminal offence;

f. He/she is associated with, or is a member of, or subscriber to, or shareholder or debenture

holder in, or connected through a partner or employee with any other Organization,
Institution, Association in Karachi where dealings in Securities are carried on;

g. He/she has been at any time expelled or declared a defaulter by any Stock Exchange or
Trade Association in Pakistan;

h. He/she has been previously refused admission to the membership of any Stock Exchange
unless a period of six months has elapsed from the date of such refusal;

2. The applicant should be an income tax or wealth tax assesses or borne as an assesses on the register
of income tax/wealth tax.

3. The minimum qualification for an applicant for the Membership shall be "Graduation".
(In the case of a person holding at least 5 years experience of working as an agent with any of the
members of the KSE or a former member of the KSE who had resigned on voluntary basis without
any cause of complaint or claim, may be allowed waiver of this requirement by the Board).

4. The applicant should have sufficient knowledge of stock market business.

5. Reference from a scheduled bank in addition to other references as disclosed in the Membership

6. In the case of an active member filing his/her/their transfer application/nomination, such member
shall also submit a bank guarantee or a guarantee by one of the existing members of the Exchange
or a guarantee by the incoming member or any equivalent security in the manner as may be
prescribed by the Exchange to the extent of Rs. 2.5 million valid for a period of 2 years from the
date of transfer of membership in order to indemnify the Karachi Stock Exchange against all claims
of replacement of shares received after the transfer of membership as per Rule 26(a) of Ready
Delivery Contracts.
Criteria for Corporate Membership

1. The Corporate Body applicant for membership must;

a. be a company or a statuary corporation or a body corporate;
b. have a minimum issued and paid-up capital of Rs. 20 million.

2. In case of statuary corporation or a body corporate to which section 183 of the companies
Ordinance 1984 applies; the membership application shall be accompanied by a "no objection" from
the Federal or Provincial Government, as the case may be;

3. The Nominee Director representing Corporate Membership must be a citizen of Pakistan. Such
nominee shall not be a member of the Exchange, nor shall be a nominee of any other Corporate
Member of the Exchange.

4. At least two Directors of the corporate membership including the Chief Executive must have a
minimum academic qualification of "Graduation".

Provided that in the case of conversion of an individual to Corporate Membership the requirement
of minimum qualification for the Chief Executive shall not apply, where the same individual
member continues as Chief Executive of the Corporate Membership.

(In case the Chief Executive of the Company is a member of the Exchange and the Nominee
Director has the stock market experience of at least 5 years as an agent with any of the members of
the Exchange may be allowed waiver of the academic qualification by the Board).

5. In the case of an active member filing his/her/their transfer application/ nomination, such member
shall also submit a bank guarantee or a guarantee by one of the existing members of the Exchange
or a guarantee by the incoming member or any equivalent security in the manner as may be
prescribed by the Exchange to the extent of Rs. 2.5 million valid for a period of 2 years from the
date of transfer of membership in order to indemnify the Karachi Stock Exchange against all claims
of replacement of shares received after the transfer of membership as per Rule 26(a) of Ready
Delivery Contracts.

6. The membership application shall be accompanied by an auditors certificate confirming that the
company maintains a net capital balance/net assets value of at least Rs. 2,500,000/- (excluding the
value of membership card).

7. The qualification of nominee Director shall be his holding of qualification shares in the company to
the extent provided under the Articles of the nominating corporate membership.

8. 50% of the total number of Directors subject to a minimum of two Directors of the corporate
membership, including the Chief Executive and Nominee, must have a minimum academic
qualification of "Graduation".

Provided that in the case of conversion of an individual to Corporate Membership the requirement
of minimum qualification for the Chief Executive/Nominee shall not apply, where the same
individual member continues as Chief Executive/Nominee of the Corporate Membership.
(In case the Chief Executive of the Company is a member of the Exchange and the Nominee
Director has the stock market experience of at least 5 years as an agent with any of the members of
the Exchange may be allowed waiver of the academic qualification by the Board).

9. The Chief Executive and Nominee Director must have at least 3 years stock market experience.

10. In case the equity of the company is subscribed by foreign participants; No Objection Certificates
from State Bank of Pakistan and Ministry of Finance; is to be furnished.


1. In relation to inactive member, who has applied for transfer of his/her/their membership; the notice
period for the purpose shall be 15 days for inviting objections/claims after the issue of notice.

Provided that an active member, who has been inactive for a period of at least 2 years from the date
of filing the transfer application/nomination and, has also filed a declaration to this effect, shall be
treated as an inactive member for the purpose of notice period of 15 days.

2. In relation to active member (including those who are members of the Clearing House), the notice
period for inviting objections/claims from the members shall be 90 days after the issue of notice.

Provided that in the event of an undertaking given by the incoming member (on the prescribed
format) to settle all the objections/claims/liabilities of the outgoing member, the Board may even
before expiry of the 90 days notice period consider and accept the membership application.


In case the outgoing member is a participant of Central Depository Company of Pakistan Limited, he/she is
required under the Regulations of CDC to notify the CDC about his/her application made to the Exchange
for transfer of membership and shall also submit to the Exchange, NOC of the CDC in this behalf.

The role of stock exchanges

Stock exchanges have multiple roles in the economy. This may include the following:[1]

[ Raising capital for businesses

The Stock Exchange provide companies with the facility to raise capital for expansion through selling shares to the investing public.[2]

[] Mobilizing savings for investment

When people draw their savings and invest in shares, it leads to a more rational allocation of resources because funds, which could have been
consumed, or kept in idle deposits with banks, are mobilized and redirected to promote business activity with benefits for several economic
sectors such as agriculture, commerce and industry, resulting in stronger economic growth and higher productivity levels of firms.

Facilitating company growth

Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against volatility, increase its
market share, or acquire other necessary business assets. A takeover bid or a merger agreement through the stock market is one of the simplest
and most common ways for a company to grow by acquisition or fusion.

[] Profit sharing

Both casual and professional stock investors, through dividends and stock price increases that may result in capital gains, will share in the
wealth of profitable businesses.

Corporate governance

By having a wide and varied scope of owners, companies generally tend to improve on their management standards and efficiency in order to
satisfy the demands of these shareholders and the more stringent rules for public corporations imposed by public stock exchanges and the
government. Consequently, it is alleged that public companies (companies that are owned by shareholders who are members of the general
public and trade shares on public exchanges) tend to have better management records than privately-held companies (those companies where
shares are not publicly traded, often owned by the company founders and/or their families and heirs, or otherwise by a small group of

Despite this claim, some well-documented cases are known where it is alleged that there has been considerable slippage in corporate
governance on the part of some public companies. The dot-com bubble in the early 2000s, and the subprime mortgage crisis in 2007-08, are
classical examples of corporate mismanagement. Companies like (2000), Enron Corporation (2001), One.Tel (2001), Sunbeam
(2001), Webvan (2001), Adelphia (2002), MCI WorldCom (2002), Parmalat (2003), American International Group (2008), Bear Stearns
(2008), Lehman Brothers (2008), General Motors (2009) and Satyam Computer Services (2009) were among the most widely scrutinized by
the media.

However, when poor financial, ethical or managerial records are known by the stock investors, the stock and the company tend to lose value. In
the stock exchanges, shareholders of underperforming firms are often penalized by significant share price decline, and they tend as well to
dismiss incompetent management teams.

[ Creating investment opportunities for small investors

As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small stock investors because a
person buys the number of shares they can afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares of
the same companies as large investors.

[ Government capital-raising for development projects

Governments at various levels may decide to borrow money in order to finance infrastructure projects such as sewage and water treatment
works or housing estates by selling another category of securities known as bonds. These bonds can be raised through the Stock Exchange
whereby members of the public buy them, thus loaning money to the government. The issuance of such bonds can obviate the need to directly
tax the citizens in order to finance development, although by securing such bonds with the full faith and credit of the government instead of
with collateral, the result is that the government must tax the citizens or otherwise raise additional funds to make any regular coupon payments
and refund the principal when the bonds mature.

Barometer of the economy

At the stock exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when
companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis could
eventually lead to a stock market crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the
general trend in the economy.