An exclusive weekly Stock Market report by Khadim Ali Shah Bukhari & Co.

Updated on Sep 18, 2000

The past week has been volatile both in terms of price and volume. The KSE 100 Index opened at 1577 and eventually closed for the week at 1555.70, posting a loss of 1.35% WoW.

Trading began on a firm note, and breached the immediate psychological barrier of 1580 and 1600 with immense ease, as volumes surged to 177.5mn shares. The optimism for breaking news on Hubco was kept alive, and cushioned the stock for the first two days as the Index peaked at 1604.24. However, when it became obvious that no final settlement had been reached, market sentiment dampened.

Institutions, which had been highly active in the recent week from the buy side, took advantage of higher levels to reduce exposure as uncertainty engulfed the local arena once more. The report of the investigation committee chaired by Mr. Etrat Rizvi, identifying eight brokers responsible for the stock market crisis triggered more pessimism. Retailers and jobbers took advantage of the aggravated situation and switched to being sellers in the market. Foreign investors continued to remain on the sidelines.

High volume stalled the rally, and as the Index eased, volumes declined. Further reduction in volume will provide support to the Index.

The base shares were concurrent with the volatility witnessed in the Index behaviour. MCB, Nishat Mills and Ibrahim Fibres performed quite well, posting WoW gains of 6%, 4%, and 6% respectively.

The Index is expected to find immediate support at 1550 levels and this level will be vital for the determination of near term direction. Major support is expected at 1475 levels. Initial and major resistance are identified at 1600 and 1650 levels respectively.

Sector Outlook: Impact of oil price increase

1973, 1979 and I991 and now 2000. What do they have in common? And we are not referring to the Olympics here. Now being called the fourth oil shock, the recent highs in oil prices has all the characteristics of putting the previous years highs in oil prices to shame. Despite repeated increase in output, Brent crude continues to trade at WTI prices of US$33/barrel, the highest in past 10 years, fuelled by an insatiable supply and demand gap.

OPEC countries say that they understand the problem and in their September 11 meeting, they agreed to increase the production to 26.2mn b/d from 25.4mn b/d, an increase of 3.1%. It was not enough, as it failed to bring the price below important psychological barrier $28 bbl. Following the meetings outcome, the crude oil prices dropped marginally, but rose back by to the pre-meeting level by the end of the week, demonstrated that OPEC had not done enough. With OPEC countries, the problem is not with quotas, but rather with production. The quota increase will only increase their compliance level, as many of them were already have their taps on full open.

Pakistan, unlike other Asian countries, is not going to immediately experience the effect of an oil price hike, as most of our petroleum is purchased on pre-determined rates. This lagged effect will give some time before the economy has to bear the full brunt of higher international oil prices.

We try to determine the overall impact of repeated oil increases and the impact on local companies if oil continues to sustain the current levels of US$33/Barrel.

Oil Marketing Companies

Under our scenario analysis, the Oil Marketing Companies (OMC) are going to benefit the most from an upward price revision of domestic POL (Petroleum) products, as their distribution margin is a fixed percentage of the prevalent oil price.

In addition, there are going to be extra benefit of inventory gains. Our calculations show that for PSO alone, with the assumption of an average reserve stock at 70% of storage, inventory gain will be Rs 1 bn for FY2001, boosting the EPS by Rs 4. With the liberalization of the downstream oil sector, the benefit of oil price increase is going to be more profound. With the deregulation of Furnace oil, its price is being revised upwards by the OMC's on a weekly basis, resulting in more frequent inventory gains. Remain Overweight

We have become more conservative in our approach towards this sector's weighting, and recommend an Underweight stance.

Airlines

This recent rise in oil prices is likely to have severe repercussion for an already troubled sector. We believe that although PIA continues to remain in the red, this recent increase in furnace oil is likely to further aggravate the financial health of PIA. On a global scale with the rise in oil prices we could be witness to a drop in traffic growth. With 20% of operating costs linked to the aircraft fuel and charges, upward sloping trend of oil prices is likely to cause severe cash flow problems for PIA. Maintain Underweight

MARKET ROUNDUP
..	LAST WEEK	THIS WEEK	% CHANGE
Mkt. Cap (US $ bn)	7.53	7.41	-1.59%
KSE 100 Index	1577.00	1555.70	-1.35%
Total Turnover (mn shares)	760.96	664.95	-12.62%
Value Traded (US$ mn.)	534.28	439.00	-17.83%
No. of Trading Sessions	5	5
Avg. Dly T/O (mn. shares)	152.19	132.99	-12.62%
Avg. Dly T/O (US$ mn)	106.86	87.80	-17.83%
MSCI Pakistan Index:
Pak Rs.	109.69	108.58	-1.01%
US $	51.64	51.24	-0.784%

.Source: KSE, MSCI, KASB

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ASIA PACIFIC & AUSTRALIA
EXCHANGE	INDEX	lEVEL	CHANGE	EXCHANGE
Bombay	BSE	4562.38	-109.54	-2.34%
Hong Kong	Hang Seng	16249.53	-145.90	-0.89%
Singapore	Straits Times	2053.69	-23.33	-1.12%
Sydney	S&P ASX 200	3329.8	-14.80	-0.44%
Tokyo	Nikkei	16213.28	+22.76	0.14%

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EUROPE & UNITED STATE OF AMERICA
EXCHANGE	IINDEX	LEVEL	CHANGE	EXCHANGE
Frankfurt	DAX	6999.54	-48.96	-0.69%
London	FTSE	6417.3	-138.20	-2.11%
Paris	CAC	6614.65	-23.26	-0.35%
Dow Jones	Industrial.	10927.00	-160.47
NASDAQ	Composite	3835.23	-78.63