Leading market players of Islamabad, believe that it was a major technical correction and all these factors combined helped expediting it

Mar 20 - 26, 2006

Pakistan Capital Market experienced the most unpredictable and volatile conditions for most of the times during March reminding the nightmare of the March 2005. The KSE-100 index which suffered heavy fluctuations was minus of 941 points or 8.2 percent the final tally indicates of the last week. This being described as the biggest fall, after the March 2005 crash.

Different reasons are being given by experts for the last week mini crash. Some attribute it to a report published in section of the press that CBR was collecting data about shares trading, some blame President Bush's visit to Pakistan which proved a failure from Pakistan's point of view, while other describe the scenario as a much needed technical correction.

Leading market players of Islamabad, however, believe that it was a major technical correction and all these factors combined helped expediting it. According to them KSE 100 index will consolidate near and around 10,000 points and the market may further slip down by 300 to 400 points from the last week level of above 10,500 points. This proved correct by first day performance of the market on Monday, which lost another about 380 points.

Sources in the CBR strongly contradicted the news item published in the Business Recorder to the effect that the CBR was planning to collect information about investment in shares from all the three stock exchanges in the country. Clarifying the position, CBR spokesman, Habib Fakhruddin told PAGE that the report was unfounded as no such idea has ever been thought or discussed in the CBR. He termed the news item as "totally baseless, incorrect and misleading".

The spokesperson clarified that the CBR for the last couple of years was in the process of developing a data warehouse by the name "NEXUS" for broadening the tax base, tax to GDP ratio and for achieving its goals but it has yet to go a long way. Data present is very discrete, data of utilities, vehicles, imports and taxes paid is being used to develop this capability and not to enforce. However, no attempt has been made or thought at this stage to collect the information about investment in shares, credit cards, foreign travel or bookings in five star hotels, as claimed in the said news item.

Mr. Habib Fakhruddin was of the view that the last week fall in the KSE volume was not the result of the said news item, which had been blown out of proportion. According to the investigation, the market declined because of selling pressure from institutions and big investors who could not be scared from any data collection attempt by the CBR as these are not supposed to the dealing with tax evaded or black money. Reasons for this so-called mini-crash were somewhere else, claimed CBR spokesman.

Market analysts also agreed with this contention and attributed the current losses to over brought positions in the market. Investors had taken positions in leveraged stocks and that played havoc with bullish sentiments. According to them the stock market had received much awaited technical correction through profit taking. The technical correction might be excessive, they warned, advising investors specially the smaller ones not to take position on day-to-day basis and avoid investment with borrowed money.

Some Analysts believed that investors particularly big players have adopted a strategy of "one step forward and two steps back" at the equity market, since index touched ever highest peak. They maintained that the foreign investors were withdrawing their capital from the market for the sake of profit taking, which was expedited by the local institutions and brokers. One of the analysts described the situation in a much more subtle way. "Saying KSE is always looking for excuses to adjust to reality".

Omar Iqbal Pasha, former chairman ISE while commenting on the last week developments in the stock markets, Mr. Pasha said that it was only long over-due technical correction after continued bullish sentiments in the market for the past many weeks. Some developments in the country specially the law and order situation including a suicide attack on American Consulate in Karachi, Bush visit and some rumors about CBR fresh attempts expedited the correction process. However there was nothing to worry as the market fundamentals are strong and Pakistan capital market is still the most attractive market in the region. Profitability record is most alluring but the only impediment in the foreign investment in our capital market is the law and order position in the country, which leaves much to be desired. Mr. Pasha however, ruled out any possibility of the repetition of March 2005 crash.

Whether a correction or a mini crash last week was a nightmare for the stock traders. How many of them have been ruined and to what extent is not known and perhaps would never be known. In the light of the experience of March last (2005) crisis; it is certain that they will return to the market to make up the losses they had to suffer due to uncertain conditions.