. .



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

A

THE KASB REVIEW

STOCK MARKET AT A GLANCE

Updated on May 04, 2002

THE KSE OVERVIEW: BOBBING OVER 1900 LEVELS

The market closed at 1904 level this week, up 2.4% from last week's closing at 1856 levels. Although there was an air of repression on the bourses during the week, the average daily volume increased to 126 million shares, compared to 114 million shares last week. With the referendum, followed by the Labor Day holiday falling plumb in the middle of the week and a strike, the market remained on edge and only just managed to close above the 1900 psychological barrier.

On Monday, the day before the referendum, the market rose five points and broke the 1900 barrier, following the Supreme Court's endorsement of the presidential referendum order. Investors felt that they would not be threatened by mid-term changes again and hence could look forward to the fact that economic and political reforms would continue unabated over the next five years. The bearish sentiments during the day resulted in PTCL and Hubco gaining 2.9% and 3.5% in value. Further, PSO's price increased by 1.8% during the day following updates on its privatization process and in the wake of the markets reaction to a second interim dividend of 20%.

On Tuesday, the day of the referendum, the market ended two points lower at 1899. With the May Day holiday the next day and the referendum during the day, a section of investors decided to take profits. However, the selling was absorbed easily as brokerage firms bought at dips for their clients with longer-term investment horizons. Adamjee Insurance, Lever Brothers, Packages and BOC Pakistan were amongst the gainers during the day, while PTCL, PSO, ICI Pakistan, Shell, PSO and Nestle Milkpak faced correction in their prices at the bourses.

On the third trading day of the week, which happened to be Thursday, the MQM declared a strike in protest of the killing of two of its leading members. With news of three explosions and threatening phone calls demanding closure during the day, the market slipped another three points and ended an hour and fifteen minutes earlier (1:00 pm relative to usual timings of 2:15pm) at 1896 levels. Both PTCL and PSO lost value during the trading day by 0.5% and 1% respectively, while ICI's prices also continued to languish. However a second interim dividend of 75% by BOC Pakistan, 45% final dividend by Packages and 20% by General Tyre and Rubber Company roused buy side interest, and limited the decline of the market.

On Friday, the market broke the psychological 1900 level barrier for a second time during the week and closed for the day 9 points higher. Though Friday was in essence the first normal trading day after the tremendous results of the referendum, it was also the last day of the week and traders resisted from taking up too many positions. Positive news on PTCL's agreement with NASDAQ listed FLAG telecom and the Privatization Commission's announcement that PSO would be privatized by August 31 contributed to the increase in the prices of the stocks that closed for the week 2.1 % and 0.49% higher respectively at PRs19.10 and PRs 163.10. Hubco's price also increased during the day, and resulted in cumulative increase in value over the week of 5.6% at PRs25.60.

MARKET STRATEGY

Overall though the referendum has instilled more confidence in the bulls, the bears feed upon potential agitation by the opposition parties. The latter were fuelled by Benazir Bhutto's latest announcement that she will indeed return to Pakistan and be a contender in the upcoming October elections.

Though foreign investor buy side interest in the market is still largely missing, the two-day meeting of the IMF-World Bank sponsored Pakistan Development Forum in Paris has broken the news that the World Bank will commit US$1bn to the country in soft loans. Further, in the World Bank's country report, the institution has observed, "... how much has been accomplished so quickly." The general sentiment at the seminar was that if the reform effort is to continue unabated and the irritants to foreign investors are removed, its country risk should continue to decline and hence Pakistan will potentially become an attractive proposition.

We believe that the sea-saw in bearish and bullish opinion is likely to last until the October elections, after which a more stable political and economic outlook should form a platform for a sustained long- term growth in the value of the Index. In the meantime, we believe that sustained interest is likely to be in stocks with inherently strong fundamentals and growth potential as well as privatization plays.

Over a more immediate timeframe, we continue to believe that the market will remain range bound between 1820-1900 over the next 4 weeks, with movement dictated primarily by liquidity conditions.

TELECOMMUNICATION SECTOR: SELLING CELL PHONES

A GLOBAL WIRELESS BECKONING

What is the wireless threat for the other more traditional telecommunication medium, i.e. fixed wireline? Cellular telephony is the fastest growing telecommunication service form in the history of telecommunications. Wireless is helping telecommunications evolve faster than ever before. According to the Telecom Status Report for 2000-01, released by the Economic Research wing of the Pakistan Telecommunication Authority, there are 35 markets in the world, where the transition from wireline to cellular has already begun, and the number of cellular subscribers is higher than wireline subscribers. Further about 500,000 people worldwide sign up for a cellular subscription everyday and consequently total cellular subscribers in the world approximately double every year.

THE PAKISTANI CELLULAR STORY

Pakistan has just recently crossed the threshold of the cellular industry's inherent exponential growth. Cellular growth has been massive over the last year and a half. Penetration grew by 100% in FYO1 with the introduction of the Caller Party Pays regime in November 2000 and the aggressive entry of the PTCL's cellular subsidiary Pak Telecom Ltd., in February 2001. Consequently cellular subscribers grew to 700,000 subscribers by June 2000, as opposed to only 350,000 a year ago. It is estimated that by June 30, 2002 cellular subscribers will cross the million mark.

MEET THE PLAYERS

There are at present four brands fighting for market share in the cellular industry in Pakistan. Private sector operator Mobilink along with Paktel and Instaphone (the latter are under one management) compete with PTML. Mobilink and PTML offer GSM technology, while Paktel and Instaphone possess Amps technology.

According to the Telecom Status Report, PRs4,634mn was invested in the cellular industry in 2001. Consequently the cumulative investment in the sector grew to PRsl8.64bn in FY01, relative to total investment of PRsl4.06bn by FY00. The lion's share of the investment in 2001 may be attributed to the setting up of a US$60mn GSM 900 network by PTML.

INCREASING COMPETITION: RUNNING TO STAND STILL

It seems increasingly probable that investment in the sector is likely to remain high with the increasing competition in the industry, forcing cellular service providers to keep adding and upgrading capacity to protect market share, or in other words running to stand still. Mobilink has signed an agreement with a Chinese telecoms group, ZTE Corporation, to develop and improve the company's GSM network. Mobilink will purchase GSM infrastructure from ZTE Corporation worth US$200 million over a period of f~ve years. PTCL too has contracted with Nortel Networks for a US$60 million network expansion, which is expected to come online in July 2002. Further, early this year Instaphone upgraded its service to digital amps, and there is news that Paktel is also expected to graduate to time division multiple access (TDMA) soon.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

7.14

7.31

2.38

Total Turnover (mn shares)

573.94

504.52

-12.10

Value Traded (US$ mn.)

390.53

257.09

-34.17

No. of Trading Sessions

5

4

 

Avg. DlyT/O (mn. shares)

114.79

126.13

9.88

Avg. DlyT/O (US$ mn)

78.11

64.27

-17.71

KSE 100 Index

1856.09

1904.16

2.59

KSE All Shares Index

1164.23

1192.54

2.43

.Source: KSE, MSCI, KASB