Weekly review: Market slides 3.4% under peer pressure

Foreigners sell $5.6m worth of shares.

KARACHI:

Concerns about the state of the US economy and the deteriorating law and order situation in Karachi weighed down heavily on the market as the benchmark KSE-100 index fell below the 11,000 point barrier for the first time in 39 weeks.

The index witnessed a torrid week with the final two sessions witnessing sharp declines, which resulted in the market falling by 3.4 percent or 383 points to stand at 10,880 points.

The market has dropped almost 11 percent (1325 points) since the start of August and has declined 9.5% since the start of the year. The trend is in tandem with the US stock market, where the Dow Jones Industrial and the Standard and Poors 500 indices have witnessed similar or worse declines.

Average daily volumes plunged by 49 per cent to 36 million shares on the back of a deteriorating law and order situation in the city coupled with the Ramazan factor, according to JS Global Capital research notes. Activity tends to slowdown in Ramazan, a trend witnessed over the years.

Five people were gunned down in various parts of Karachi on Saturday, raising the death toll of the recent spate of violence to more than 45.

In terms of key developments, the week was fruitful for oil marketing companies and refineries sectors, as the ongoing issues of marketing margins and incidentals on ex-refinery prices were finally resolved.

The Economic Coordination Committee approved increase in margins on regulated products by 30 to 32 per cent for oil marketing companies and allowed incidental charges for refineries. Attock Refinery jumped 1.2 per cent during the week on the news.

Moreover, economic data released showed that the current account deficit declined by $556mn on a yearly basis to $75 million in July, whereas large scale manufacturing data remained disappointing as it registered contraction of 2.95 per cent in June on a yearly basis.

Nonetheless, foreign interest in the market remained dry, as the local equity market witnessed foreign outflow $5.6 million.  A total of $10.2 million has been extracted by foreigners in August alone.

Newly listed Pakgen Power attracted huge investor response following major dividend surprise of Rs5 per share as the stock rallied 6.3% during the week.

Corporate results

National Bank of Pakistan’s earnings per share increased three per cent to Rs4.81 in the first half of 2011, below industry consensus mainly on account of higher provisioning expense. As a result, the stock closed at its lower circuit on the result announcement on Friday, while falling 10.3% on a weekly basis.

Habib Bank earnings came in line with expectations at Rs8.43 per share, up 25 per cent on a yearly basis.

Outlook

As has been evident over the last few weeks, the movements of the country’s bourses have been in tandem with the movements in the global markets and this trend can be expected to continue in the coming week.

Yet, it should be kept in mind that global markets stand oversold and many big investors in the US market, including Warren Buffet, have reiterated their confidence in the markets and are actively purchasing when the markets are down. Investing carefully in the current scenario could pay more than just dividends in the future.

Monday, August 15

The stock market fell on the first trading session of the week despite gains in global markets.

Sentiments remained bearish as investors remained concerned over volatile global capital and commodity prices after the US economic slowdown and Europe’s debt crisis.

Tuesday, August 16

After five days of continuous decline, the stock market finally recovered from the dark amid positive news for oil marketing companies (OMC). Increase in OMCs’ margins invited some fresh buying in the sector.

Wednesday, August 17

The stock market continued from where it left off the preceding day and gained 36 points.  Institutional buying was witnessed on Wednesday ahead of corporate result season.

Thursday, August 18

The stock market witnessed a selling spree triggered by deteriorating law and order situation in Karachi. A fresh wave of violence gripped Karachi with at least 39 people killed over two days in gang wars and political disputes.

Friday, August 19

The stock market took a nosedive and fell more than 200 points in the opening 20 minutes to close at a 10-month low on Friday due to a plunge in global markets and the ongoing violence in the city.



Published in The Express Tribune, August 21^st, 2011.