STOCK MARKET AND EMERGENCY

(The jitters proved no more than a storm in a teacup)

SHAMSUL GHANI (shams_ghani@hotmail.com)
Nov 26 - Dec 02, 2007

Why Black Monday Refused to Come ?

The bogey of emergency failed to materialize the dreams of the "proponents of change." Blinded by their one point agenda of bringing down the existing ruling set up, they were expecting the stock market to come tumbling down. Media termed the November 05 fall of 636 points the highest in the history of Karachi stock exchange as Black Monday to draw comparison to the New York stock exchange debacle of Monday, October 19, 1987 when 508 points were lost. They failed to realize that 508 points meant 22.6 per cent while in our case 636 points meant only 4.6 per cent. Moreover, the fall at New York triggered a panic that engulfed the entire world. Right from the president of the United States and the chairman of FED to the central bankers of England, Japan, Germany and other leading countries, every one had to go through sleepless nights before remedial measures were planned, announced and implemented.

The fall of 636 points that appeared engineered by the speculative forces taking their chances on the enforcement of emergency, petered out in the absence of an expected series of subsequent falls of equal magnitude. The history of Karachi stock exchange is proof that these were the ideal conditions for the speculative forces to trigger a fall of a much greater magnitude. What happened then ? Why the subsequent international developments failed to add fuel to the fire? Why the lowering of rating by the Standard & Poor, open threats by the European Union, Common Wealth and even the United States itself could not pump air into the deflated bodies of bears.

The answer should not be difficult to find for the informed and the unbiased. The answer lies in the following facts :

1. Although the existing high level of index is resting precariously on a precipice, yet a steep fall will take more than a media hype created on some fake issues. Regarding emergency, one can easily say to the disgruntled and disoriented opposition, "you asked for it",

2. No doubt the index has soared without maintaining the sectoral balance and without raising capital formation to a matching level, but the growth has not been achieved in the vacuum. It is based on some solid supporting grounds. In the wake of a sustained flow of foreign remittances, any liquidity problem in immediate future is not foreseen. Moreover, the foreign portfolio investment can no more assume the role of a bull in the china shop. Its share in the overall stock investment has been kept under check.

3. Real estate which acts as a twin sector to suck and inject back the stock market wealth is in a state of near coma. The property prices have reached a level when any further attempt to raise this level becomes a risky proposition. The downslide in prices also did not reach a level to create a renewed frenzy for property investment. It will take some engineered measures to disturb this balance of outflow and inflow of funds from one sector to the other. Present set up is unlikely to go for these measures. Those interested, will have to wait until the new set up takes over!

4. A heavy fall in stock prices may be brought about by substantially increasing the rates of profit on government saving schemes. In near future, this also doesn't seem probable.

What Do the Figures Suggest?

The following table reveals some interesting facts about the ups and downs of KSE-100 index level during the period under discussion :

KSE-100 INDEX TABLE-1
(4-week pre / post Emergency period)

DATE

INDEX

DAILY INCREASE /(DECREASE)

PER CENT INCREASE /(DECREASE)

29-Oct-07

14393

-

-

30-Oct-07

14027

(366)

(2.54)

31-Oct-07

14320

293

2.09

1-Nov-07

13930

(390)

(2.72)

2-Nov-07

13915

(15)

(0.11)

5-Nov-07

13279

(636)

(4.57)

6-Nov-07

13426

147

1.11

7-Nov-07

13500

74

0.55

8-Nov-07

13424

(76)

(0.56)

12-Nov-07

13656

232

1.73

13-Nov-07

13622

(34)

(0.25)

14-Nov-07

13315

(307)

(2.25)

15-Nov-07

13111

(204)

(1.53)

16-Nov-07

13082

(29)

(0.22)

19-Nov-07

13240

158

1.21

20-Nov-07

13315

75

0.57

21-Nov-07

13509

194

1.46

Net Increase / (Decrease) 
during the period

(884)

(6)

It will be interesting to note that on the so called "Black Monday" KSE lost 636 points while during the entire 4 week period of "turbulence" just 884 points were lost. Moreover the "Grey Thursday and Wednesday" responded by registering increases of 147 and 74 points instead of providing momentum to the initial fall of 636 points. Other major falls of 390, 360 and 306 points were off set by increases of 293, 232, 158 and 147 points..

The next table shows that a fall of 884 points in 4 weeks time is quite normal and consistent with the prevailing trend of index. In August, 2007, KSE lost 1525 points when there was no emergency and reconciliation with one of the major opposition parties was the talk of the town.

KSE-100 INDEX TABLE-2
(Month end position since April 2007)

MONTH

INDEX

MONTHLY INCREASE /(DECREASE)

PER CENT INCREASE /(DECREASE)

Jan-07

11272

-

-

Feb-07

11180

(92)

(0.82)

Mar-07

11272

92

0.82

Apr-07

12370

1,098

9.74

May-07

12961

591

4.78

Jun-07

13772

811

6.26

Jul-07

13739

(33)

(0.24)

Aug-07

12214

(1,525)

(11.10)

Sep-07

13352

1,138

9.32

Oct-07

14320

968

7.25

Net Increase / (Decrease) during the year

3,048

26

During the first 10 months KSE gained 3048 points accounting for 26 per cent , while during the turbulent month of November only 884 points, accounting for 6 per cent, were shed and this fall was no more than a storm in a teacup.