Market puts May’s woes behind it, surges 1.2 per cent

KARACHI: The KSE-100 returned to the green zone in the week ended June 4 after the battering it received in May. The benchmark index was up 1.2 per cent week-on-week after having declined 10.4 per cent in the month of May.

May has historically been a bad month for the KSE-100 index and this year was no exception as the market plummeted from above 10,500 points to 9,300 points by the end of the month.

The first day of the week, May 31, saw the market fall sharply by two per cent. Fortunately, that was the worst of what the market would witness during the week and the advent of June saw the KSE-100 index surge 3.3 per cent to cap the week off on a positive note.

Budget uncertainties, which were blamed for the market’s losses, were put aside on news flow regarding the approval of the draft of margin financing product by the law ministry.

It is likely that the long-awaited product will be launched in the market soon and will allow investors to buy stocks on leverage. The product is widely expected to provide a boost to the market as it will result in potentially higher volumes due to improved liquidity.

Input by the investors will be sought by the Securities and Exchange Commission of Pakistan before the final version of the product is implemented in the country’s stock markets.

The resignation of the State Bank of Pakistan governor, Salim Raza, failed to stem the positive sentiments generated in the market and the market did not witness any downside effect from the announcement on Wednesday night.

Budget-related uncertainties (regarding the Value Added Tax and the Capital Gains Tax), however, were reflected in volumes as the trading again remained thin, and declined slightly to 102 million shares from 103 million shares in the previous week.

Trading volumes have remained thin for the last few weeks as investors await clarity on tax-related issues in the upcoming budget. The budget was announced on Saturday and will be passed on June 28.

Although trade volumes fell by 1.5 per cent during the week, total average traded volume declined by 0.1 per cent as significant activity was witnessed in blue-chip stocks like Engro Corporation, the Oil and Gas Development Company and the Hub Power Company.

Second-tier stocks like Lotte Pakistan and Jahangir Siddiqui and Company remained volume leaders during the week.

Total market capitalisation of the KSE increased by 1.2 per cent to Rs2.73 trillion by the end of the week.

Foreigners were again net buyers during the week, albeit by only $0.5m. They were helped out by $2.2m worth of net buying by mutual funds while companies and individuals were net sellers.

With the budget announcement, many of the investors’ questions will be answered and the effects of those will be witnessed in the upcoming week. If investor friendly announcements are not made, the KSE is likely to witness a decline and could plummet further from the losses sustained in May.

That being said, the implementation of margin financing will continue to have a positive effect and if that is coupled with positive announcements in the budget, then the KSE-100 index can be expected to witness another bull run.

Published in the Express Tribune, June 6^th, 2010.