KSE-100: VOLATILITY RETURNS

By HARIS ZAMIR
Mar 20 - 26, 2006

Once again history repeated itself in March as the market splintered twice since the beginning of the month. In other words, we can say that March has become a symbol of atrocity as the market's participants Evoked last year's crisis that had occurred in the same month. High leveraged positions coupled with an overbought situation were the major causes of the drastic decline. For this March, only overdue correction was the prime reason given that the market had gained significantly without any major correction till February 23, 2006 where the market ended at its highest level of 11609. Till the end of February, everybody was thrilled about the new level and some foretold that the market might pursue the 12500 level because of mixed reports regarding new discoveries of oil and gas reserves and promising results in banking scrip.

Since then the KSE-100 has been declining and very recently it crashed thrice five sessions of March scrapping over 1250 points from the index.

Not a single institution came to the rescue of the market participants, totally ignored by the government, the Securities and Exchange Commission of Pakistan and the Karachi Stock Exchange.

No inquiry has been done or not even for face saving any committee was constituted to check the free fall in the index.

The correction which was overdue hurt many and once again the game of big players worked who through different medium were saying that the PE is quite low and the market is bound to rise from 11600 level, and investors hold their position to make more bucks. "That was the biggest mistake when the investors became greedy and shelved their wants and started believing on the market rumours that the index would go up from here which resulted in heavy losses" said an analyst. Several investors for example made nearly 300,000 to 400,000 rupees during the rally are now in deep loss for more than 900,000 rupees, and are net losers.

There is no fundamental change in the status of the companies, several have reported good earnings but when punters created hype that the scrip would pay a bonus and earnings per share would be higher than last year and when announced it came below the expectation of the players, the market men suddenly created panic in that particular scrip and share prices fell like nine pins. On repeated occasions, whenever, the company has announced dividend and earnings the share price plunged drastically and rumour mongers took stronghold of that position, creating panic among the small investors.

During the last three nightmares when the share market nosedived, no negative development surfaced either on the political or economic front. It was just a panic selling and rumour mongers stole the show. The market took a plunge on bomb explosion and on the second time when the U.S. President George Bush delayed announcement of any economic or bilateral package for Pakistan, rather they wanted restoration of democracy. Moreover, rumours also spread that the country is heading towards some political changes, some shuffles are expected in ministry of commerce and finance, the gas and oil reserves found at Tal Block is less than the market expectation, the government failed to announce any date for PSO sell-off and selling by foreign investors.

A big question was asked by leading observer, that "our bourse is so fragile that a handful of foreign investment about $450 million inflow in seven months of the current fiscal year can dictate the stock market having a capitalization in excess of $47 billion". It is totally untrue, selling pressure has been created by some people having vested interested and who missed the boat, creating panic among the investors to offload their holdings. Because the volumes are relatively higher than the previous March crises, which showed that some of the big players are buying the lot, foreseeing a turnaround in short-term.

"Even the signing of PTCL agreement failed to create buying euphoria in the market on Monday which recorded a decline of 396 points, which indicates, most of the players are on the selling side aiming to reduce their losses in this fragile market" stated a leading dealer. Since these declines mobile phones are ringing in the market too speedily asking about any negative news or if there is some political change in the offing. The reply was in negative, it is only the selling pressure, creating uncertainty among the seasoned players.

It took almost 2-months for Pakistan equities to gain 2,000 points and it took only 6 trading sessions (Mar 6-13) to wipe out 1,400 points. During these 6 trading sessions the local bourse lost almost US$6 billion in capitalization, one of the biggest corrections in the last 12 months. One of the main contributing factors behind this steep fall is selling by foreign funds.

The MSCI Emerging Markets Index dropped 4.1 percent in the week ended March 10 making it one of the worst weekly falls in last 14 months. Main reason for this selling being the rising borrowing costs (interest rates) in the U.S., Europe & Japan, the world's 3 largest economies, that may slow global growth and make riskier assets, such as shares in emerging markets, less attractive. Amid faster economic growth, Emerging markets have been in the limelight this year with Emerging-market equity funds attracting around US$21 billion in first 11 weeks of 2006 as per Emerging Portfolio Fund Research.

Pakistan, amongst the Emerging Markets, came under selling pressure from offshore investors that dumped shares worth US$53 million in the first 2 weeks of Mar 2006 as per the central bank's statistics out of US$472 million invested in last 8 months.

Mohammad Sohail, director research at Jahangir Siddiqui Capital Markets said that in the emerging markets such correction has occurred three times in the last two years. And on an average such correction has lasted for four to six weeks with average fall in MSCI Asia ex Japan of around 11% and currently this Index is down by 2.1%. Based on this theory, we May see this correction in emerging markets to continue for few weeks. Analyzing the major correction on the local bourses in the last 5 years of Bull Run, we have observed that the correction has ranged between 10-33 percent (average correction 20 percent). In Jan 2003, the Index fell by 600 points (20 percent) in 6-weeks and then recovered. Later on in Sep 2003, Index underwent a 7-week correction of 800 points (18 percent). Than in June 2004, market saw downward movement of 550 points in 10 weeks. The famous Mar 2005 crisis brought the biggest correction of 3,350 points (33 percent) at local stock market. The current correction is the fifth biggest correction seen at KSE. In this latest correction, the market is down by 1,000 points (9 percent) in a matter of one week.

KSE-100 INDEX COMPANIES:

National Bank

NIB Bank Limited

Millat Tractors

Fauji Fert BinXD

Prime BankXB

Dawood Lawrencepur

D.G.K.Cement

J.O.V.and CO.

Clariant PakSPOT

Lucky Cement

Packages Ltd.XD

Jah.Siddiq.Co.

Nishat Mills

Kohinoor Textile

Pak.Services

K.E.S.C.

PICIC Inv.FundXD

Attock Cement

Pak PetroleumXD

J.D.W.Sugar

Gadoon Textile

Fauji CementXD

Cherat Cement

Colgate Palmolive

B.O.Punjab

Attock Refinery

Ghani GlassSPOT

Pak.PTA Ltd.

P.N.S.C.

UniLever Pak

Sui South Gas

Pak Suzuki

New Jub.Ins.

Maple Leaf Cement

Ibrahim Fibres

Atlas Honda

Bosicor Pak

Honda Atlas

I.G.I.Insurance

Pak OilfieldsSPOT

National Ref.XD

Bestway Cement

P.S.O.XD

Mari GasSPOT

Dawood HerculesXDXB

Fauji Fertilizer

Kohinoor Energy

Gul Ahmed Tex.

MCB Bank Ltd.SPOT

Pak Tobacco

Kohinoor Weaving

Bank Alfalah

Pak ReInsurance

Nestle Pakistan

Dewan Salman

Metro Bank

Siemens EnggXD

P.I.C.I.C

Shell PakistanSPOT

Wazir Ali

Union BankXDXB

General Tyre

Dreamworld

Faysal Bank

Indus Motor

Fay.Mfg.Mod.SPOT

P.I.A.C.(A)

Arif Habib Sec.

Lakson Tobacco

Askari Bank

Pak RefineryXB

Rafhan Maize SPOT

Pakistan Cement Ltd.

Century Paper

Hub PowerSPOT

Bata (Pak)

I.C.I.

GlaxoSmithkline

PICIC GrowthXD

Abbott (Lab)SPOT

Kot Addu PowerXD

Azgard Nine

Nishat (Chunian)

BOC (Pak)

Sui North Gas

Security Paper

Engro ChemicalSPOT

AL-Ghazi TractorSPOT

Saudi Pak Bank

Orix Leasing

Adamjee Ins.

Thal Limited

PICIC BankSPOT

Gatron Ind.

Soneri Bank

Bannu Woollen

BankAlHabibXDXB

Int.Ind.XD