The week started on a promising note as the chairman of the Securities and Exchange Commission of Pakistan (SECP) announced during a visit to the Karachi Stock Exchange, that the margin trading system (MTS) will be implemented in the bourses before month-end.
The announcement helped the bourse close in the green on Monday, but it was the point from where the downtrend started, as the market steadily plummeted in the remaining four days culminating with a two per cent or 217 points decline on Friday.
Investor minds were hooked to the unfolding of the Raymond Davis case, which could have dire consequences for the economy as the US has threatened to stop aid programmes.
With strong protests taking place against the killing of two men in Lahore by the American, the government is stuck between a rock and a hard place as on one side is the Pakistani population and on the other is the United States.
US diplomats have made it clear to Pakistani authorities that Davis should be released as he enjoys diplomatic immunity. This, coupled with the crisis in Egypt, meant that foreign inflows all but dried up. Total foreign buying during the week stood at an extremely low level of $7.9 million while total selling was $7.7 million, meaning that net foreign buying was down 97 per cent over the previous week.
In other political news, all members of the federal cabinet tendered their resignations during the week, before most of them were reappointed on Friday. This also contributed to the overall uncertainty in the political scenario.
To add to the market’s woes was the announcement by Moody’s that Pakistan’s sovereign debt rating could be at risk if reforms recommended by the International Monetary Fund were not quickly implemented. The government has faced stiff resistance in the implementation of these reforms from its allies and opposition alike.
All the negativity meant that corporate announcements were more or less overlooked by market players. Pakistan State Oil posted a profit of Rs7.1 billion for the first six months of the year, a whopping 40 per cent increase over the previous year.
Similarly, two banking heavyweights, MCB Bank and Allied Bank Limited, announced earnings of Rs16.9 billion (up 9 per cent) and Rs8.2 billion (up 15 per cent) respectively. Their dividends, though, were slightly below market expectations and thus did not spark a rally in their shares.
Volumes continued to decline and fell 19 per cent over the previous week, standing at an average of 95 million shares per day. Most activity was restricted to second-tier stocks, meaning average daily value fell to Rs3 billion. Total market capitalisation also fell to Rs3.2 trillion, down 3.5 per cent.
What to expect?
The market can be expected to remain under pressure in the coming week as the Raymond Davis case continues to unfold and the 12th Rabi-ul-Awwal religious holiday is coming up.
There are positives to look forward to as the crisis in Egypt has come to an end, improving potential of foreign investment. Furthermore, details regarding MTS will also be a major factor in the determination of the market’s direction.
Monday, February 7
Stocks ended flat as investors waited for the outcome of the Securities and Exchange Commission of Pakistan chairman’s meeting with the Karachi Stock Exchange board on the much-awaited margin trading system. The Karachi Stock Exchange benchmark 100-share index ended 12.95 points higher at 12,427.36.
Tuesday,February 8
The stock market recorded profit-taking again as the index lost 66 points after Securities and Exchange Commission of Pakistan chairman’s visit a day earlier failed to stimulate investor interest. The Karachi Stock Exchange benchmark 100-share index ended 66.42 points lower at 12,360.94.
Wednesday,February 9
Another dull day was witnessed at the stock market as investors stayed on the sidelines on news of a deepening diplomatic row with the US on the Raymond Davis issue. The Karachi Stock Exchange benchmark 100-share index ended 0.5 per cent or 61.66 points lower at 12,299.28.
Thursday February 10
Bearish trend continued on the stock market as investors remained glued to the sidelines owing to escalating tensions with the US on the Raymond Davis case. The Karachi Stock Exchange benchmark 100-share index ended 111.81 points lower at 12,187.47.
Friday,February 11
The stock market opened on a positive note but news regarding tensions escalating between Pakistan and the US along with Moody’s scare of a potential downgrade in rating sparked panic among investors in the second half.
Published in The Express Tribune, February 13th, 2011.
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