A domino effect

Bilal Umar May 09, 2010

KARACHI: The stock market suffered a loss of 1.5 per cent during the week ended May 7, after dropping 1.7 per cent during the previous week, losing a massive 2.7 per cent on Friday alone.

The major question resounding in investors’ minds was the status of foreign inflows, which have been declining for the last 3 weeks. This week was no different as after healthy inflows in the first three sessions, foreigners chose to sell their positions and offloaded $9.4m worth of equity on Friday. Total foreign inflow for the week stood at $12.5m, which was down 10 per cent from the previous week.

It seems to have become a trend in the past few weeks that foreign investors buy positions in the first few sessions of the week and then offload their investments towards the end of it. The reason for this phenomenon remains unexplained but a majority of analysts have been pointing fingers towards the effects of the Greece debt-crisis. Markets shed value during the week as New York’s Dow Jones Industrial average lost most than 5 per cent during the week while London’s FTSE-100 shed 4.1 per cent on Friday alone.

An announcement of a bail-out plan for Greece was received with scepticism and world markets continued to decline as concerns regarding Spain and Portugal’s global debts also came into the limelight. Analysts believe that foreigners became cautious about money invested abroad after their own markets suffered losses.

But, some of the market’s major players believe otherwise and don’t think that the Greek crisis was behind the foreign outflows witnessed on Thursday and Friday. Yasin Lakhani, sitting director of the KSE, blamed the outflows on profittaking while Arif Habib, founder of one of the country’s largest brokerage houses, said that the European crisis will have a minimal impact on the Pakistani market.

As a result of the outflows on Friday, the stock market shed 2.7 per cent (282 points), after rising 1.3 per cent in the first three trading sessions of week. Local factors failed to contribute much to the market’s performance as news regarding the Government of Pakistan releasing Rs16b for Pakistan State Oil and Etisalat’s intention to acquire a further 25 per cent stake in PTCL, failed to attract investors’ attention.

During the week, average volumes improved slightly by 14.6 per cent to 130m shares per day after declining by 28.3 per cent and 38.5 per cent during the previous two weeks respectively. The improved average volumes were due to the abnormally high volumes of 181m shares on Friday when the market witnessed heavy selling.

Furthermore, most of the activity was restricted to second and third-tier stocks in line with previous weeks. Looking forward, analysts at KASB Securities believe that due to the tightening of foreign inflows due to global events, lack of positive news regarding the upcoming budget and the drop in global oil prices, the market will continue to remain under pressure in the coming week.

They believe that investors will keenly be looking towards news regarding key issues like the introduction of the Capital Gains Tax, the resolution of inter-corporate debt, the outcome of the IMF meeting on May 14 and the re-introduction of leveraged products in the market.

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