KSE: THE CHANGING TRENDS

 

Stringent steps needed to curb insiders' trading

By SHABBIR H. KAZMI
Aug 30 - Sep 05, 1999

With no real change in economic fundamentals, the surge in share prices during the last few weeks seems to have no rationale. It is important to note that besides shares of companies with large capital base, activity spilled over to other stocks. It was believed that with no change in fundamentals the rally would not last very long. Similar activity was witnessed in May this year which proved to be of very short-term. However, some of the analysts are still bullish about the market.

Some of the analysts say that bullish trend was not unexpected. There has been a visible change in perception about Pakistan and its economy, retail and institutional investors are active and banks have ample liquidity to take long-term position in the capital market. All the active scrips are currently selling at discount despite enjoying good fundamentals. Therefore, the interest of a group from Lahore, enjoying over Rs 1.5 billion at its disposal, commercial banks and other retail investors in the capital markets would continue to counter any selling pressure resulting from off-loading of stock by the foreign investors. They also say that investors, for the time being, have little interest in accumulating dollars and investing in trade, real estate and gold.

The KSE-100 index will continue to move within a range of 100 points. This is due to the psyche of speculative investors in Pakistan. They buy/accumulate when index goes down by 100 points and sell, as and when, the index goes up to make quick buck. This mainly happens due to 'insiders trading' and rumour mongers. The price movement in HUBCO is a clear exhibit of the activities of rumour mongers. The people, involved in such trading, first create a buying euphoria by giving a feeling that the agreement between HUBCO and WAPDA has been reached. Once the share price goes up to their pre-fixed level the news about widening gap are flashed and price plunges. In this whole exercise they make millions.

Some analysts, while forecasting the trend of KSE-100 movement, say that there is still some reasons to remain skeptical about the future of stock market. They say that some factors will continue to keep the foreign investors away from Pakistan for a considerably longer time. These factors are: repayment of sovereign debt, swap dollars, disbursement of loans by multilateral lenders, insistence of developed countries that Pakistan should sign CTBT and NPT. However, two issues are more important: export performance of Pakistan and devaluation of currency by China.

Pakistan has not been able to enhance its exports mainly due to being an exporter of commodities, raw materials and semi-finished products. However, the real issue is hardly any availability of exportable surplus. All the major products being exported from Pakistan face recessionary trend and even if the country is able to export larger quantities the realizable price per unit goes down in terms of dollars. This will put more pressure on balance of payments because of increase in crude oil price.

The situation demands that investors should act more prudently. It is more important to look at the forecast of the performance of a company rather than its historical data. The analysts say that while the historical data about fertilizer sector suggests that profit margins had come down, the changed fundamentals suggest that the companies will post better results in the second half of 1999. This assumption is based on promulgation of anti-dumping law, possibility of imposition of regulatory duty on import of urea and higher off-take of fertilizer in the second half of the year.

Similarly, PSF sector faced poor capacity utilization till the end of 1998 but its current capacity utilization touches 95 per cent. Apart from this improvement, the potential threat of dumping has been reduced due to increase in international prices of PSF. Therefore, larger sales volume will result not only in economy of scale but also improvement in local prices resulting in better profit margin.

Lower cotton prices, cotton policy, improved supply of PSF at the modest price provide impetus for the recovery of textile sector in the country. Besides, the current trade policy offers various incentives to local textile manufacturers to enhance their exports. However, to ensure improved performance of the sector, it is necessary to concentrate on larger export of value-added products. This target can be achieved by discouraging export of lower counts of yarn, grey fabrics and 'stock lots' fetching lower prices.

  Before
13-08-99
Rally
20-08-99
After
25-08-99
PTC 21.10 24.20 21.35
Hub Power 19.30 19.75 19.50
FFC 48.00 53.25 49.75
Engro 72.00 75.45 74.75
PSO 125.00 133.00 129.30
Shell 189.00 220.00 200.00
Bank of Punjab 32.50 39.95 45.10
Dewan Salman 30.20 33.10 33.15
Askari Bank 14.75 17.25 16.00
Faysal Bank 10.05 12.00 11.15