Aug
30
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Stocks at the Karachi share bazaar slid a further 2.4 per cent on Friday, recording a sharp plunge of 30 per cent in equity values over the eight months since January this year.
The KSE-100 index clinging to four figures of 9,994 points just four months down the road from its record high at 15,750 on April 18, looked especially gory.
Many stock brokers shook their heads when asked if they were on the sell side. But foreign investors were clearly the panic prone herd.
“Net foreign selling since January stands at $350 million with sell orders flying across trading rooms of brokerages aggregating to a huge $20 million in the past two days”, says Mohammad Sohail at JS Capital.
The sinking value of the rupee which hit the pit at Rs77.15 to a dollar on Friday, weak economic numbers including depletion in foreign exchange reserves and the political wrangling among coalition partners were believed to have prompted Moody’s to issue a note of caution on Wednesday, which foreign funds took as a signal to take to a flight.
Foreigners who had entered the equity market in droves to grab advantage of the previous seven years of the country’s outperformance as one of the best markets in the world, still hold $3 billion worth of stocks and 25 per cent of the free float.
But over the past four months, value of Pakistani equity market has sunk to $41 billion, from $75 billion, reflecting a loss of $34 billion. Converted at the current currency value that worked out to a drain of staggering Rs2.6 trillion! Market capitalisation at close of trading on Friday stood at Rs3.1 trillion.
Tariq Iqbal Khan, chairman and MD of NIT, the country’s largest mutual fund and the manager of the recently constituted “Equity Market Opportunity Fund” of the size of Rs20 billion says, he never sells in a falling market.
He reiterated that the Opportunity Fund had been created to capture value buying for its contributors, which in turn could stabilise the market. He said that the ‘concept paper’ of the Opportunity Fund clearly laid down that approvals had to be sought from the federal government and the SECP and that the Fund could sell “only if it is satisfied that such sale would not in any manner destabilise the market and that it is not detrimental to the basic objective of never acting against public interest”.
Nadeem Naqvi, who recently stepped down as the CEO of AKD Securities to venture into more challenging tasks, asks for a look at the global picture. “Stock markets”, he says “are taking the blow everywhere because both the US and Europe are experiencing sharp economic slowdown; Japan posted negative GDP growth in the last quarter and Indian economy growth has slid from 9 to 7 per cent”.
China is expected to face a meltdown after the glowing economics of Olympics are over. “Due to the global slowdown, inflation is rising and interest rates are likely to edge higher in the future, pushing down asset values including that of stocks all across the world”, says Nadeem.
But for the KSE, he has something cheerful to say. “Historically over the 10 to 15 years, the Pakistani stocks have traded at the forward price-to-earnings (p/e) ratio of 8.5 to 9 times and the equities are now down to a multiple of 6.7 times, which means the downside is limited”.
He, however, adds that the upside too is capped at the index level of 11,000 points, given the political uncertainty, high interest rates, economic worries and the erosion in the value of rupee”.
Several market pundits agreed that the KSE might continue to trade in the range of 9,000 to 11,000 points until the winter this year.
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