STOCK MARKET PERFORMANCE IN 1Q/FY08

MARIAM NASIR
Manager Research
Oct 08 - 21, 2007

Over the last few months there has been a lot of volatility in the stock market, primarily emanating from the ongoing political uncertainty in the country which was further complemented by global economic uncertainty. Though, the last one has not been that significant as foreign investors only own a minor share in our market vs. other emerging markets. Hence overall in the first quarter (July-September) of the current fiscal year KSE-100 declined by 3.1%, worst performance when compared to corresponding quarters of the past six years. During the quarter, KSE-100 Index breached the psychological level of 14,000 and reached a historical high of 14,288.24. Average daily volume traded during the quarter stood at 254m shares, up 45% compared to a turnover of 176m shares recorded during the corresponding quarter of last year.

REASON BEHIND THE TUMULT

* Global liquidity crisis because of Sub-Prime mortgage financial crisis resulting in a cumulative outflow of US$60m from Special Convertible Rupee Account.

* Supreme Court decision of reinstating Chief Justice Iftikhar Chaudhry.

* Statements by Senior US official that they would consider using military force to destroy alleged Al Qaeda hideouts in Pakistan.

* The Lal Masjid Operation which deteriorated the law and order situation in the country.

* SBP's decision to increase the discount rate to 10%.

* The decision of the Supreme Court to maintain the stay order against privatization of Pakistan State Oil.

* SBP proposal to banks to make 100% cash provisioning for Non Performing Loans.

A much larger declined would have been there if the following positive news would not have come up during the quarter:

* Higher international crude oil prices and expectations of an upward revision in the wellhead gas prices by OGRA.

* The over subscription of HBL Initial Public Offering by 2.33 times.

* The Privatization Commission's decision to formally initiate issuance of GDRs of NBP and PPL.

* Favorable corporate earning reported by almost all listed sectors at the bourse for the year ending FY07.

* Cement stocks was in the limelight due to strong export sales and the export potential to the Indian market.

On the smaller scale, scrip wise announcement included: Bank Islami Pakistan Ltd.'s confirmation that it has reached an agreement with Jahangir Siddiqui and DCD Investments Ltd. for acquiring their 100% shares in the Bank, acquisition of 19% additional shares of Meezan Bank Ltd. by Noor Financial Investment Company of Kuwait, announcement by Singtel that it would be paying US$758m to acquire a 30% stake in Warid Telecom, SBP allowing a consortium of banks led by Shaukat Tareen to conduct the due diligence of Saudi Pak Commercial Bank Ltd, EMP Global LLC.'s announcement of investing US$30m in TRG International Ltd.

REGIONAL COMPARISON

The KSE-100 Index was the worst performing index in the Asian region. Three markets, namely of Hong Kong, India and China closed at their all time high levels. Chinese market rose the most by 45.3% followed by Hong Kong and India at 24.7% and 17.9% respectively. After Pakistan the worst performance was by Japan which was down by 7.5%. Thailand, South Korea, Indonesia, Taiwan and Singapore market rose in the range of 4.5%-12%.

FUTURE OUTLOOK

The political uncertainty has subsided and the market is back on the track towards upward movement. Given the strong macro and micro-economic fundamentals coupled with values still being offered by most fundamentally strong scrips listed at the KSE, we expect the bourse to remain positive.