Stringent steps needed to curb
By SHABBIR H. KAZMI
Aug 30 - Sep 05, 1999
With no real change in economic fundamentals, the surge in share prices
during the last few weeks seems to have no rationale. It is important to note that besides
shares of companies with large capital base, activity spilled over to other stocks. It was
believed that with no change in fundamentals the rally would not last very long. Similar
activity was witnessed in May this year which proved to be of very short-term. However,
some of the analysts are still bullish about the market.
Some of the analysts say that bullish trend was not unexpected. There
has been a visible change in perception about Pakistan and its economy, retail and
institutional investors are active and banks have ample liquidity to take long-term
position in the capital market. All the active scrips are currently selling at discount
despite enjoying good fundamentals. Therefore, the interest of a group from Lahore,
enjoying over Rs 1.5 billion at its disposal, commercial banks and other retail investors
in the capital markets would continue to counter any selling pressure resulting from
off-loading of stock by the foreign investors. They also say that investors, for the time
being, have little interest in accumulating dollars and investing in trade, real estate
The KSE-100 index will continue to move within a range of 100 points.
This is due to the psyche of speculative investors in Pakistan. They buy/accumulate when
index goes down by 100 points and sell, as and when, the index goes up to make quick buck.
This mainly happens due to 'insiders trading' and rumour mongers. The price movement in
HUBCO is a clear exhibit of the activities of rumour mongers. The people, involved in such
trading, first create a buying euphoria by giving a feeling that the agreement between
HUBCO and WAPDA has been reached. Once the share price goes up to their pre-fixed level
the news about widening gap are flashed and price plunges. In this whole exercise they
Some analysts, while forecasting the trend of KSE-100 movement, say
that there is still some reasons to remain skeptical about the future of stock market.
They say that some factors will continue to keep the foreign investors away from Pakistan
for a considerably longer time. These factors are: repayment of sovereign debt, swap
dollars, disbursement of loans by multilateral lenders, insistence of developed countries
that Pakistan should sign CTBT and NPT. However, two issues are more important: export
performance of Pakistan and devaluation of currency by China.
Pakistan has not been able to enhance its exports mainly due to being
an exporter of commodities, raw materials and semi-finished products. However, the real
issue is hardly any availability of exportable surplus. All the major products being
exported from Pakistan face recessionary trend and even if the country is able to export
larger quantities the realizable price per unit goes down in terms of dollars. This will
put more pressure on balance of payments because of increase in crude oil price.
The situation demands that investors should act more prudently. It is
more important to look at the forecast of the performance of a company rather than its
historical data. The analysts say that while the historical data about fertilizer sector
suggests that profit margins had come down, the changed fundamentals suggest that the
companies will post better results in the second half of 1999. This assumption is based on
promulgation of anti-dumping law, possibility of imposition of regulatory duty on import
of urea and higher off-take of fertilizer in the second half of the year.
Similarly, PSF sector faced poor capacity utilization till the end of
1998 but its current capacity utilization touches 95 per cent. Apart from this
improvement, the potential threat of dumping has been reduced due to increase in
international prices of PSF. Therefore, larger sales volume will result not only in
economy of scale but also improvement in local prices resulting in better profit margin.
Lower cotton prices, cotton policy, improved supply of PSF at the
modest price provide impetus for the recovery of textile sector in the country. Besides,
the current trade policy offers various incentives to local textile manufacturers to
enhance their exports. However, to ensure improved performance of the sector, it is
necessary to concentrate on larger export of value-added products. This target can be
achieved by discouraging export of lower counts of yarn, grey fabrics and 'stock lots'
fetching lower prices.
|Bank of Punjab