THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated Aug 17, 2002

 

MARKET REVIEW: BREACHING BARRIERS

The major factors influencing activity in the stock market this week were 1) expectations  of

 

approximately 30-35% dividend declaration by Hubco 2) foreign investors regaining interest largely due to forthcoming results 3) profits and dividends expected from most of the fancy stocks 4) privatization of PSO and 5) the SECP reforms agenda for the de-mutalization and increased participation of non-members in the management of the stock exchanges.

THIS WEEK'S PERFORMANCE

This week the KSE- 100 index continued the bullish trend reflected during the latter half of the pervious week. The index breached the 1850 point barrier during the week but a technical correction and profit taking at higher levels resulted in the index to close the week at 1,843.26 points, reflecting an increase of 1.56% over the previous week. The average daily volume amounted to 137.61mn shares, a 133% increase over the previous week's ADV. The most active issues were Hubco and PSO, both of which attracted interest on fundamental grounds.

OUTLOOK OF THE COMING WEEK

Although we continue our positive stance on the market, the reaction of the leading brokers to the SECP reforms agenda for the stock market may lead to a decline in volumes along with some decrease in the index. We believe that these reforms will have a positive impact on the stock markets in the long run, some short term back lash cannot be ruled out. Furthermore, in our opinion a technical correction is also likely in the following week since a number of scrips seem to be overbought technically.

THE DAILY DRAMA

With blue chip stocks showing strength and local & foreign institutional investors taking a bullish stance on the KSE, the KSE-100 increased by 1.5% to close the day's trading at 1,842.82 points. 182.14mn shares were traded on Monday, which was higher than an entire week's trading during some weeks in July. The bullish trend in the market was largely due to market rumors of a hefty dividend declaration by Hubco, which constituted about 40% of the shares traded during the day. Adamjee Insurance was the largest gainer because of considerable speculative interest. Three of the large cap scrips i.e. PTCL, Hubco and PSO all reflected increases in share value.

Tuesday's trading started with an aggressive rally, with the KSE-100 breaching the 1850 barrier. However, technical correction at this level resulted in the KSE- 100 to close at 1,846.02 points, up 3.20 points from the day before. Support remained strong for blue chips shares, with considerable foreign interest in Hubco and PSO. There was also some interest in shares of the fancy stocks due to BoD meeting and dividend declarations expected during the next month. Share turnover increased further to 184.40mn shares but was mainly concentrated in a few leading scrips. Since Wednesday was Independence Day and a public holiday, stock markets remained closed. On Thursday, due to profit selling at the higher levels the KSE- 100 declined to 1840.98 points, a decline of 5.04 points. The volumes declined to 87.12mn shares. According to reports, one of the reasons for the somewhat decline in interest, especially institutional interest, was the new SECP reforms for the KSE which made the brokers and therefore investors wary. The trading volume increased to 96mn shares on Friday with most of the interest being in PSO, volumes of which outstripped both Hubco and PTCL. We believe that this renewed interest was due to the announcement of the date of the BoD meeting. As a result the KSE-100 index closed the week at 1843.26 points, up 2.28 points from the day before.

SECTOR REVIEW

SECP'S DRIVE FOR GOOD GOVERNANCE

We like the new measures that the Securities & Exchange Commission of Pakistan (SECP) is planning to embark upon the stock exchanges for improved corporate governance. This week, the regulator announced two measures namely, the changes in the composition of the managements at the stock exchanges and the demutualisation of these exchanges. As expected, the brokers' community has shown their displeasure over these two developments. However, we expect the brokers to eventually cool down as the regulator seems to have a firm stance as far the implementation of its reform agenda is concerned. We have covered the two topics separately in our daily research notes, however, we are presenting here our views on the entire issue.

THE CHANGES IN THE MANAGEMENTS

The new directives from the Securities & Exchange Commission of Pakistan (SECP) is carrying a strong message from the regulator. The regulator simply wants the independent professionals to take-over the stock exchanges. The change in the composition of boards of directors, the reduction in numbers of directors, professional chairman and elimination of vice chairman post are the steps that simply hint towards the fact that four nominees of the members are unlikely to make any impact over the working of the stock exchanges.

Reportedly, the SECP has not consulted all the leading brokers in this regard. However, if we recall correctly, the SECP's chairman has extensively talked about these reforms in one of his recently published interview. Moreover, the new directive has a validity date of September 15th. In such a scenario, another fear is arising that SECP will be sending home the existing leadership of the exchanges almost 3 months ahead of the expiry of the term of their offices. We are of the opinion that SECP may reconsider the implementation date of this directive and the new rules may be implemented after the expiry of the existing term of the office holders.

WHY WE LIKE THIS?

FOLLOWING IS THE JUSTIFICATION FOR OUR LIKIN:

Independent managements. The member directors dominate the existing boards of directors of the exchanges. This step will strengthen the SECP's position into the boards and the working of the exchanges will be driven on professional grounds in future rather than on vested interests basis.

Transparency. During the last stock market crises, a common complaint from small investors was that big brokers are influencing the stock exchange regulations to derive extra-ordinary benefits. The overnight changes in the exposure rules were a deploring example of this issue back in 2000. In the presence of impartial managements, such issues are unlikely to occur in the future.

A step towards de-mutualisation. Sooner or later, our markets will have to be demutualised. And with the new managements, this will help the SECP to alter the shareholders' structure of the exchanges quit easily.

Change in the set up. The existing setup of the stock exchanges, which comprises various committees for all the key decision making, will also change. We believe this change will speed up the implementation of other reforms as these committees were proceeding very slowly in terms of implementation of regulations like insider trading etc.

Relief to foreign investors. Foreign investors that have been complaining about the dual role of brokers in our markets will be much relieved from this move. With independent managements at the exchanges, their confidence will further be restored.

Attract ADB loan. Finally, this step will also help SECP in attracting the second phase of ADB's capital market reform loan. Though the regulator has not disclosed the nature of the reforms under the second phase, we are of the opinion that independent managements, demutualisation of the bourses and the development of debt markets will be the corner stones of the next ADB's funding.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt Cap (US $ bn)

7.10

7.19

1.27

Total Turnover (mn shares)

294.46

550.42

86.93

Value Traded (US$ mn.)

187.49

418.20

123.05

No. of Trading Sessions

5

4

 

Avg. Dly T/O (mn. Shares)

58.89

137.61

133.66

Avg. Diy T/O (US$ mn)

37.50

104.55

178.81

KSE 100 Index

1815.76

1843.26

1.51

KSE All Shares Index

1145.14

1161.65

1.44

Source: KSE, MSCI, KASB