Stock market on track for dullest year in history

Negative returns, narrow trading range were some of the setbacks.

KARACHI: The Karachi Stock Exchange has had the worst year in terms of returns as they fell 3.2% on a yearly basis. If this was not frustrating enough for investors, bourse moved in a narrow range of 3.5%, its tightest range since introduction of the bourse in 1991.

Looking at the difference between the high and lows of each year shows that 2011 stands out for the wrong reason. If an investor had perfectly timed his entry by investing when the bourse was at its lowest level and exited at the peak, return would have been 17% which pales in comparison to history, according to a KASB Securities research note. The narrowest range in previous years was 30% in 2010.

Comparison to the 1990s could be distorted as circuit breakers in recent years have restricted wild moves. However, even 1991 – with only 45 trading days as the index initiated in November 1991 – had a wider movement than 11 months of 2011, adds the note. This analysis obviously pertains to an average investor and is probably more relevant for institutional investors. The year has had its share of success stories as fertiliser stocks Fatima Fertilizer, Fauji Fertilizer Bin Qasim and Fauji Fertiliser Company witnessed impressive rallies.

Trade volumes at a glance suggest that trading volumes at the bourse are trending at levels seen in the early 2000s. However, KASB Securities fine tuned the analysis by comparing the average rupee volumes at KSE with the average rupee market cap of the KSE every year and the numbers emerged as the worst since 1995 with the ratio at 0.12%. Despite witnessing a massive 200 basis points cut in discount rate and corporate profitability remaining robust, combination of lack of an investor friendly leverage product and investor anxiety regarding capital gains tax has played a major role in this decline, says the note.

The low volumes have not only hampered price discovery but have also restricted foreign interest, which usually is attracted to liquid markets.

Published in The Express Tribune, November 25^th, 2011.