Market gains 1.8% as holiday spirit starts early at KSE

KARACHI: The holiday spirit seemed to have emerged a week early at the Karachi Stock Exchange (KSE) as volumes fell another 30 per cent over the preceding week’s already dismal tally.

A short burst of excitement from local investors coupled with sustained interest in a few stocks from foreign investors helped the index post gains for the week that brought the index back up to the level it had dropped from at the beginning of Ramazan.

The benchmark KSE-100 share index rose 187 points or 1.8 per cent to end at 9,879 points during the week. Average daily volumes stood at 35.39 million shares against 50.37 million shares traded in the preceding week. During the week, gains were posted on all but the last day of trading and the index once again unsuccessfully tested the 9,950 level.

The stock market closed a day early this week owing to the Eid holidays. The market will reopen on Tuesday.

Analysts commented that interest from a few institutions helped maintain stock prices during an otherwise uneventful week at the exchange.

“Mutual funds and foreigners were net buyers of $2.9 million and $2.6 million, respectively while companies and banks were net sellers of $3 million and $2.8 million dollars, respectively,” revealed JS research analyst Rabia Tariq.

The country’s corporate sector has remained largely unaffected by the recent floods. However, analysts have warned that macroeconomic indicators such as inflation, unemployment and savings rates may suffer.

Some sectors are expected to fare better once rehabilitation and reconstruction plans get underway, however lack of accurate estimates of the extent of losses have so far kept investors on the back foot.

Pakistan’s economic recovery is hinging on the International Monetary Fund’s support. In comments made to Pakistan government, IMF officials said they would “see how exactly the programme has fared on money already disbursed” before releasing fresh funds. JS analysts pointed out that “IMF has set four pre-conditions – implementation of GST, power sector reforms, more autonomy of SBP and clearing of the circular debt arising from commodity operations - to release two remaining tranches of $2.6 billion”.

Stock brokers’ hopes for a quick improvement in market participation on the introduction of financing for equity trade were dashed when chairman KSE Zubyr Soomro dissented on the proposed margin trading system. Securities and Exchange Commission of Pakistan has thwarted an attempt by brokers to remove chairman KSE and have instructed brokers to address concerns regarding risk and lack of transparency in the margin trading system.

Although regular trading hours will be restored after Eid holidays, investors’ interest may not be revived as quickly.

“Volumes and sentiments will remain closely pegged to news flow on the reintroduction of leverage product,” said senior analyst at Aziz Fida Husain Securities Hasnain Asghar Ali. While most stock brokers and analysts have huddled on to the leverage product bandwagon, not everyone is convinced that the burst of liquidity will prop up share prices.

“Lack of liquidity and active participants in the market is hindering efficient price discovery and if more people start participating in the market, it should become easier to ascertain the real worth of each individual stock,” explained an analyst.

“If the overall economic condition continues to worsen, more liquidity could actually drag down equity prices further in the coming months,” he summed up. Regardless of the direction that equity prices may take, stakeholders are pinning hopes on the launch of the much-awaited margin trading system.

Published in The Express Tribune, September 11^th, 2010.