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THE KASB REVIEW
STOCK MARKET AT A GLANCE

  1. FINEX WEEK
  2. STOCK WATCH
  3. STOCK MARKET AT A GLANCE

Updated on July 07, 2001

The KSE Overview:

The 4.4% decline in the KSE-100 Index when it closed this week at 1306, down 60 points from last week's 1366 levels is in continuation with the downward slide in the Index that we have seen since

Mid February of the current year. If the market had reached the 1370 level we could have been relatively assured that we would at last see an upward trend.

However, the nagging weakness in the market continues to be a cause of concern since the market has breached the 1325 barrier.

So what happened to send the market careening downwards to still lower levels? The crackdown on certain speculative elements in the capital market by the National Accountability Bureau had two implications, both adverse in the short-term, that resulted in capital shying away from the stock market.

Firstly, it brought excess paper into the market. More specifically stocks worth between PkR700-800mn, which includes Hubco, WorldCALL and Engro. This has resulted in the Average Daily Volume (ADV) expanding by 49.6% to 73.56 million as against last week's ADV of 49.17. The total volume for this week was 294 mn, 19.7% higher than previous week's 246mn. Demand has thus been low for the additional paper, which has been brought into the market sending the entire market into a state of depressed activity, and thus prolonging the bearish run. The 5-day RSI has moved to just 31.1, indicating that the market has moved well into the oversold zone.

Secondly it seems to have sent signals to the other speculative elements in the market to proceed more warily in future. This has only served to compound the dampening of speculative activity within the market, which was expected since the switchover to the T+3 system had begun on schedule from the beginning of this week. The T+15 futures trading system has not had the desired response as yet. The consequent decrease in badla rate to 21.35% from 24.57% last week, has frankly been the only sign in the current scenario that week holders are letting go of their long positions, indicating that the bottom of the market is nearing, although at this point in time, it may seem that there is no end in sight.

Rumors of foreign selling in PTCL and Hubco have been floating around. We believe, that this for the latter is related to sale of local shares with the possibility of conversion to GDR at some later date. In the short-term, however, this has depressed the market.

If the market does breach the 1300 psychological barrier we feel that the risk of further decline extends to 1280 levels.

Over the next couple of weeks, the following positives may perk up the market:

The latest news doing the rounds is that New Delhi streets are being given a new coat of paint in anticipation of the General Pervez Musharraf's visit. News has it that India has declared that it will set 400 Pakistani prisoners free as a gesture of goodwill, by the time the President arrives in India. With the home side deciding to extend such cordialities, hopes would be built up regarding the final outcome of the Agra summit

The GoP having met most of its IMF set third quarter targets, the chances third tranche of the IMF loan of US$ 196 mn, being released look quite good

Investment Perspective

We remain overweight on Fauji Fertilizer, Hubco, IFL and PTCL. Over the short term we remain overweight on Askari Commercial and maintain our long-term neutral recommendation. Over the short term we are underweight on Adamjee, ICI and PSO. On Dewan Salman and Nishat Mills we would recommend a trading buy and a long term Neutral. We would recommend Telecard as a buy on weakness

The Power Sector: Changing Realities

Introduction

Domestic investors, outside of speculative activity in Hubco, have generally looked at the power sector primarily in terms of the captive producers over the last few years. While, as in the case of most utilities, capital appreciation has not been the prime consideration, dividend yield have played a major role in their investment decisions for this segment. In FY99 and FY00, the captive listed power companies have, with few exceptions, been great dividend plays providing yields in the range of 20%-30%. Non-captive IPPs, on the other hand, have during the period suffered as a result of WAPDA's cash flow problems and the fallout from Hubco/WAPDA tariff dispute.

Changed Realities

After the resolution of the WAPDA/Hubco dispute, we believe that the

investment paradigm in the power sector has shifted. Goring forward, we believe that the captive power does not offer the kind of opportunity seen in the past, at least in the intermediate term. On the other hand, selected non captive IPPs are likely to potentially provide better returns to investors over the next 12 month period, in our opinion.

Our above view is based on assessing the impact of developments.

First, WAPDA has strongly discouraged captive power units from selling electricity to non-group concerns. This will likely reduce sales revenues, going forward, which will now become totally dependant on sister companies' own production and sales growth. Given that textile exports are under pressure and cement over capacity continues unabated, as these two industries have the bulk of captive plants, we believe the next 12-month are going to be tough for this segment.

Second, the cost dynamics of the captive plants are such that fuel cost typically ranges between 65-70% of total cost of production. Thus, as long as international oil prices were low, it made sense to produce in house power as the cost per kWh tended to be below WAPDA's tariffs while also assuring un-interrupted power supply. With furnace oil prices having moved from around PkR9,000 per tonnes 18 months ago to over PkR14,000 per tonnes at present, the per kWh cost has risen sharply or captives.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

5.33

5.10

-4.32

Total Turnover (mn shares)

245.83

294.23

19.69

Value Traded (US$ mn.)

214.90

155.40

-27.69

No. of Trading Sessions

5

.

4

Avg. Dly T/O (mn. shares)

49.17

.

73.56 49.61

Avg. Dly T/O (US$ mn)

42.98

38.85

-9.61

KSE 100 Index

1366.43

1306.29

-4.40

KSE All Share Index

870.35

836.68

-3.86

.Source: KSE, MSCI, KASB



ASIA PACIFIC & AUSTRALIA
EXCHANGE INDEX LEVEL CHANGE EXCHANGE

Bombay

BSE

3305.78

-11.85

-0.36%

Hong Kong

Hang Seng

12999.5

-208.05

-1.58%

Singapore

Straits Times

1660.76

-27.26

-1.61 %

Sydney

S&P ASX 200

3353.9

-23.90

-0.71 %

Tokyo

Nikkei 

12306.1

-301.22

-2.39%

Australia

All-Ords

3302.2

-23.10

-0.69%

.



EUROPE & UNITED STATE OF AMERICA
EXCHANGE INDEX LEVEL CHANGE EXCHANGE

Frankfurt

DAX

5862.1

-137.09

-2.29%

London

FTSE

5479.2

-70.40

-1.27%

Paris

CAC

4999.36

-124.47

-2.43%

Dow Jones

Industrial

10252.68

-227.18

 

NASDAQ

Composite

2004.16

-75.95