Losing the shine: Foreign selling and ensued panic lead to KSE’s slump

Benchmark index loses 817 points in response to massive offloading by hedge fund .

KARACHI:

Reports of a big foreign fund selling its Pakistan holdings took a heavy toll on the stock market on Wednesday, with the benchmark index recording the biggest single-day drop in six months.

The Karachi Stock Exchange (KSE)-100 Index declined 2.5%, or 817.28 points, to close at 31,524.98.

Speaking to The Express Tribune, a broker said panic selling on Wednesday was in response to the massive offloading of shares on the Karachi bourse by an American hedge fund in recent weeks.

“Miami-based American hedge fund, Everest Capital, has resorted to heavy selling. I suspect its net sales amount to up to $70 million in the last month or so,” he said while requesting anonymity.

Net outflows of foreign portfolio investment since the beginning of the year have been $108.2 million. Net selling by foreign portfolio investors in February alone amounted to $62 million, which is the largest net outflow since July 2013.

It means net offloading of shares by Everest Capital should account for more than half of the total outward flows of foreign portfolio investments from the KSE since January 1. The source said Everest Capital had to sell major stakes in the Karachi stock market after its bet on the Swiss franc went wrong, resulting in heavy financial losses for the company.



Most of the hedge funds operated by the Miami-based investment house have already been shut down following the recent appreciation of the Swiss franc against the euro – something Everest Capital had betted heavily against.

Speaking to The Express Tribune, KSE Managing Director Nadeem Naqvi said foreign funds have been offloading their holdings from emerging and frontier markets in view of the expected monetary policy shift in the United States.

Investors around the world initially expected the US Federal Reserve to raise interest rates in September. In view of improved employment numbers, however, analysts now expect the interest rates to go up as soon as in June.

“The dollar has gained strength and the outflow of investments from emerging economies is accelerating,” Naqvi said.

In his daily market commentary, Elixir Securities analyst Faisal Bilwani said nervous investors are expected to continue tracking foreigners’ activity while the upcoming monetary policy announcement will likely help support declines.

“We don’t see aggressive local buying until clarity on flows direction … yield plays will sustain sell-offs and are expected to continue to weather the panic in the broader market,” he wrote.

The share of Colgate Palmolive gained 4.9% during the day to close at Rs1,837. The biggest turnover was recorded in Pak Elektron, Fauji Cement, Bank of Punjab and Engro Corp.  Trade volumes clocked up at 208 million shares while the value traded amounted to Rs11.6 billion.

Shares of 357 companies were traded on Wednesday. At the end of the day, 39 stocks closed higher, 307 declined while the value of 11 stocks remained unchanged.

Pak Elektron was the volume leader with 15 million shares, losing Rs2.69 to close at Rs50.23. It was followed by Fauji Cement with 13.5 million shares, losing Rs0.94 to close at Rs29.92 and Jahangir Siddiqui and Company with 11 million shares, losing Rs0.55 to close at Rs9.60.

Foreign institutional investors were net sellers of Rs788.3 million during the session, according to data maintained by the National Clearing Company of Pakistan.

Published in The Express Tribune, March  19^th,  2015.

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