KSE: NEW HEIGHTS

The KSE-100 index expected to cross 4,000 level during July-Sept quarter

By SHABBIR H. KAZMI
July
14 - 20, 2003

During the last two months, the KSE-100 index has gained more than 600 points and continued its unabated upward movement. At the current level, many investors little perturbed. They fear that the index may take nose-dive any moment, even on the slightest pretext. However, many analysts strongly believe that the market is now poised to test its new level at 4,000 points. Analysts also suggest that investors should also keep an eye on the regional markets, though these have hardly any relevance with the KSE-100 index movement.

While analysts have been saying for a considerably long time that the upward KSE-100 movement is a bonanza, purely led by the local investors. Excessive liquidity and dearth of other investment options have kept investors' interest in equities market vibrant. With further improvement in economic fundamentals and declining trend in interest rates, corporate earnings have been improving. Therefore, dividend yields remain attractive, despite increase in quoted prices of leading scrips.

While most of the analysts keep on referring to 'surplus liquidity syndrome', others are often unable to understand the impact of over-flowing liquidity on equities market. The quantum of excessive liquidity can be gauged from the recent T-Bills auction. As against the total bids of Rs 150 billion, the central bank picked up only Rs 75 billion or half of the amount. Out of this Rs 67.748 billion against 12-months bills and Rs 7.969 against 3-months bills. The cut off point was 2.17%/annum for 12-months bills and 1.65%/annum for 3-months bills. When banks are sitting on tonnes of money, a larger part is expected to flow to equities markets mainly for Badla financing.

Aqib Elahi Mehboob, Head of Research, AKD Securities, often come up with strange numbers. When the KSE-100 index was hovering below 3,000 level, he came up with 3,362 benchmark. While others are forecasting that the index may cross 4,000 level his benchmark is again very odd, 3,981. However, in one of his latest reports he said, "In the medium term we continue to remain concerned. Our P2M indicator now stands at 38%, approaching the peak attained during the year 2000 speculative rally, and some of the second-tier stocks recently seen at huge run up are clearly over-valued."

It is necessary to reiterate the point that the hike in prices of quality scrips is the result of demand and supply gap. The acute shortage of quality scrips has resulted in hike of second and third tier scrips also. A serious cause of concern is the growing share of second and third tier scrips in Badla trade. Some analysts say that some market manipulators are responsible for large-scale trading in these scrips. Many novice (people having money but hardly have knowledge about the market) are being intimidated to follow the Badla route.

REGIONAL MARKETS

According to Iffat Zehra of Capital One Equities, "The technological structure has enabled the efficient flow of capital and similar vulnerabilities or contagion effect of weakness in one economy spreading to other. While each of the regional economies differ in many important aspects, the sources of their growth in recent years and the problems that have recently emerged are relevant to a greater or lesser extent to nearly all of them."

The regional markets took a turn in second quarter of calendar year 2003, following a dismal performance in first quarter. Bullish signs and good volumes in many markets has given rise to the hope that the region has turned corner and is now on the climb. Majority of the regional indices grew in double digits, except the Indian market. The outlook of the region remains bright. Asia is forecasted as the fastest growing region of the world. Investors attention in the regional market is expected to remain upturned amid doubts about the economic recovery in the US. Asian markets are expected to outperform all other markets. A positive outlook for all the markets bodes an encouraging outlook for Pakistan equities market.

The overflowing liquidity and investors' keen interest in equities market demand that the GoP must implement its divestment plan, announced along with the federal budget, expeditiously. It will increase the market float of quality scrips and absorb part of the prevailing surplus liquidity.

REAL GDP (ANNUAL CHANGE IN % INDEX (% CHANGE)

COUNRY

1 Q

2Q

INDEX NAME

1Q

2Q

Pakistan

n/a

n/a

KSE-100

25%

1%

Philippines

3.7

4.8

PSE Composite

18%

2%

Indonesia

2.7

3.9

JSX Jakarta Composite

24%

-4%

Thailand

3.9

5.1

SET

33%

4%

Singapore

-1.5

3.8

Straits Times

13%

-2%

Malaysia

1.3

4.1

KLSE-Composite

15%

0%

Taiwan

1.2

4.0

Taiwan Weighted

15%

-3%

India

n/a

n/a

SENSEX

14%

-6%

South Korea

5.8

6.4

KOSPI

24%

-12%

Hong Kong

-0.5

0.8

Hang Seng

9%

-8%

Japan

n/a

n/a

Nikkei-225

18%

-6%

* n/a: not available