ECONOMY WATCH

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By SYED MUJTABA ZAFAR (zafar.mujtaba@gmail.com)
Aug 22 - 28, 2005
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KARACHI STOCK MARKET

 

 

Karachi Stock Market has been under great pressure after the crisis of March 15, when the index, after reaching the all time peak of 10,303 points, fell sharply and shattered almost 3500 points in a short span of one-and-a-half months. The market lost Rs634 billion within the 10 days of the crisis. The intensity of the crisis is also reflected by the fact that the total volume of the market which was at the all time high of 666 million on March 16, went down to the trough level of 49 million on Aug 1. The market could have been much more ruinous but thanks to the market risk management system that played a vital role and protected market from full sweep. The upper and lower circuit breaker system, monitored by the risk management department, has proved to be an effective tool to function in such chaotic conditions.

The capital market has been very unstable after the crisis of March 15. The reasons behind the high instability of the market in the recent months are the low liquidity, reduction of cap from 24 billion to 12 billion and the controversy over the implementation of the margin financing. There has been no major announcements by the government to resolve this issue, as a result, this simple issue has been complicated beyond its scope. The recent rivalry between the KSE and SECP on the COT issue is getting worst by every passing day and there is a need of serious steps to resolve this issue. Both the parties i.e. the SECP and the KSE are responsible for making KSE one of the most fragile markets. The SECP, on its part, should have taken steps well ahead to create alternate fund supply lines before replacing the badla from the market. On the other hand the stock market has shown a great resistance over the phasing out of badla mechanism. The big investors at KSE want to continue their monopoly over the market and don't want their transactions to be documented, whereas the margin financing ensures documentation and transparency in trading.

Karachi Stock Exchange is the biggest and most liquid exchange of Pakistan and has been declared as the Best Performing Stock Market of the World for the Year 2002. Despite this honor of being the best performing stock market the Karachi Stock Exchange is generally termed as an oligopolistic market, i.e. highly dominated by few players. According to an estimate there are about 15 financiers who provide more than 75% of funds to Karachi badla market. The Karachi stock market is totally unreliable and is exploited at times for selfish motives by big investors who usually have a fair idea about the investment positions.

Earlier, financing against shares was not easily available to small investors through banks and others financial institutions, which had resulted in the development of COT. Now with the introduction of margin financing the problem has been solved because margin accounts allow investors to buy shares with relatively small amount of cash upfront by using the assets currently held in their accounts as collateral. In my point of view the replacement of badla financing by margin financing is a good step because unless there are decent numbers of institutions and other players actively financing the badla market, the sword will keep hanging above Pakistan bourses and risk management will become more complex.

HALF YEARLY (01 JUL TO 31 DEC 2004)

UN: 6 DOWN: 3 STATIC: 0 TRADED: 9 TOTAL: 9

TURNOVER

TRADING VALUE

TRADES

MKT CAPITALIZATION

PAID-UP CAPITAL

1,999,786,500

214,020,391,675

849,959

101,749,121,901

1 14,358,214,001

against
2,904,540,000

against

against

against

against

of last Half Year

123,374,467,200

506,307

461,638,697,350

94,615,694,000

31.15%

of last Half Year

of last

of last Half Year

of last Half Year

Down

73.47%

Half Year

77.96%

84.82%

 

Up

67.87% Up

Down

Down

 

 

 


 

HALF YEARLY (03 JAN TO 30 JUN 2005)

UP: 5 DOWN: 6 STATIC: 0 TRADED: 11 TOTAL: 11

TURNOVER

TRADING VALUE

TRADES I MKT

PAID-UP CAPITAL

CANITALIZATION

554,351,200

32,362,201,480

217,172

1 48,142,368,960

11,102,532,000

against

against

against

against

against

1,999,786,500

214,020,391,675

849,959

101,749,121,901

14,358,214,001 of

of last Half

of last Half Year

of last

of last Half Year

last Half Year

Year 72.28%

84.88%

Half Year

52.10%

22.67%

Down

Down

74.45% Down

Down

Down

 

 

Scripts in which Badla Financing was allowed for undecided time period:

PTCL
OGDC
PSO
NBP
POL
DG cement
Hub power.