Political tensions result in lacklustre trading at KSE

Foreigners become net sellers as index closes flat.

KARACHI:

Political tensions, both local and international, resulted in a lacklustre week at the Karachi Stock Exchange (KSE) as investors preferred to remain sidelined. The KSE 100-share index closed almost flat, rising just 0.4 per cent (45 points) at 12,045 points in the week ended on March 11.

The week began on a negative note, as differences arose between the ruling Pakistan Peoples Party (PPP) and its coalition partner the Muttahida Qaumi Movement (MQM) over comments made by Sindh Home Minister Dr Zulfiqar Mirza.

PPP, after being ousted from the Punjab Government by the Pakistan Muslim League-Nawaz (PML-N), seemed to be in trouble in Sindh before the party’s Chairman President Asif Ali Zardari personally intervened and assured MQM of addressing its grievances.

The settlement of the issue saw the index recording the biggest gain of the week on Wednesday, as it climbed 1.58 per cent (176 points). However, the gains were short-lived with the reoccurrence of the government-judiciary tussle.

The Supreme Court invalidated the government’s decision to appoint a former Supreme Court judge as the head of the National Accountability Bureau, which led to protests by PPP on Friday, and subsequently, a fall in the index on the final day of trading.

International politics also played a role in the market’s dull performance with the ongoing crisis in the Middle East and North Africa. Rumours of foreign capital flight became a reality as foreigners pulled out a net $6 million from the market.

The continuing crisis also meant that there won’t be any respite in the rising oil prices. If the government continues to subsidise prices of petroleum products, the country’s economy will suffer as the government will have to resort to more borrowing, widening the fiscal deficit.

On a positive note, there was progress in talks with the International Monetary Fund for the release of a loan tranche of $1.7 billion from the standby arrangement. The government assured the IMF delegation of imposing the flood surcharge and also increasing the electricity tariff by two per cent.

Inflation numbers also surprised investors as the Consumer Price Index (CPI) data showed inflation during February at 12.91 per cent, well below earlier levels of 15 to 16 per cent. Furthermore, exports showed an impressive growth of 42 per cent and stood at $2.16 billion in February, thus reducing the trade deficit by 9.2 per cent compared with the previous year.

Average daily volumes fell sharply by 40 per cent to 88.43 million shares, as investors remained sidelined for most of the week, while average daily value also shrank by 25.8 per cent to Rs4.5 billion.

Foreigners were net sellers of $6 million worth of shares but it was largely offset by $8.6 million worth of buying from local banks. Market capitalisation remained flat at Rs3.23 billion.

What to expect?

The coming days will see the implementation of the Margin Trading and Margin Financing Systems in the stock markets, which will certainly improve volumes by enhancing the overall liquidity.

Volumes can be expected to gradually go up, as investors and lenders come to terms with the new risk-mitigating measures that will be implemented on Monday.

Politics will also remain in the limelight, as the government will have to address MQM’s grievances, while a resolution of the government-judiciary row will be a positive for the market.

Monday, March 7

The stock market fell in the first trading session of the week, as political tension scared investors away. The decline was mainly due to a brewing domestic political situation where MQM withdrew its support for the PPP-led government on security issues, according to an analyst.





Tuesday, March 8

Equity prices dipped for a second consecutive day at the Karachi Stock Exchange (KSE), as political tension and speculation over new taxes kept investors away. The benchmark KSE-100 index peaked at 12,000 points during intraday trade, but by the end of the trading session, bears prevailed over bulls, as the index shed 35 points to close at 11,940 points.





Wednesday, March 9

Equity prices bounced back at the Karachi Stock Exchange (KSE) on Wednesday on the back of renewed interest from foreign funds. The benchmark KSE-100 index climbed 188 points to end the day above the psychological hurdle of 12,000 points.





Thursday, March 10

Bears and bulls locked horns at the Karachi Stock Exchange (KSE) on Thursday, with neither prevailing by the end of the day’s trade. The benchmark KSE-100 index dropped just 2.36 points to close at 12,125.79 points as investors took cue from another round of selling in regional markets.





Friday, March 11

Equity prices fell at the Karachi Stock Exchange (KSE) on Friday as political uncertainty weakened the resolve of local participants. Sellers dominated the last trading session of the week, as the benchmark KSE 100-share index shed 81 points to close at 12,045.

Published in The Express Tribune, March 13^th, 2011.