September 2, 2002	Monday	Jamadi-us-Saani23,1423

The Pakistani stocks are at their highest in more than two years. Since January, the Karachi Stock Exchange index of 100 shares has scaled a whopping 54 per cent and responsible people are proudly showing this off as the best performing market in the world.

Only this month the index has climbed no less than 196 points— rising from 1779 to 1975 in 30 days. On Friday, the gain was a precise 25 points, which saw the index top 1975 points. The market has not been this high since April 27, 2000.

The long lost bull has returned. Investors are getting richer and they should be an extremely happy lot. But are they? With volumes soaring to almost three times the previous one-year average daily turnover of 124 million shares, a steady stream of commission has started to flow into the coffers of the stock brokers. They ought to be happy. No wonder some are suggesting the likelihood of index breaking through the 3000 mark— which would put into shade the all-time high record of 2661 points of the legendary bull market of 1994.

Government ought to be happy for this is election time and to prove that the economy is robust, there could be nothing better than to point to addition of a whopping Rs 70 billion in eight months to the value of corporate Pakistan (even if that’s only paper value); market capitalisation soaring to Rs 377 billion, from Rs 307 billion at the start of the year.

SECP—the Regulator— ought to be happy, for what more does it need to validate the claim that ‘silent majority’ of stock brokers are on its side in the on-going Regulator-broker row over the board’s restructuring. If the brokers were unhappy wouldn’t they have pulled the market down?

But for all that, it is this exuberance (rational or otherwise) of all interests in the market, that should be scary to the ordinary small investor. The country’s reserves have been swelling for a year; interest rates have been down for quite some time; at 8 times the earnings—compared with 29 times on Wall Street—Pakistani stocks have been cheap for a long time and corporate results and dividend announcements do not prod the bulls to charge into the market in the way, they have.

To take just one stock: PSO has shot up by as much as Rs 64.30 to Rs 202.80— from Rs 138.50 since Aug 1; a meteoric rise of 46 per cent in less than a month. No one is suggesting that PSO is not a blue-chip stock, which it doubtless is. But have the oil marketing company’s fundamentals changed so radically, so quickly. Most knowledgeable people at the market agree that the Privatisations Minister Altaf M.Saleem misled the market, when he announced that PSO would be sold off as early as next month. According to the Privatisation Commission’s own website: www.privatisation.gov.pk — it takes as many as five months from due-diligence to final closing of a transaction; the due diligence by short-listed bidders itself consumes two months of time. There is no possible way by which PSO could be privatised before the elections. But following Privatisation Minister’s misleading statement the share in PSO galvanised by Rs 24 in just three sessions from Rs 177 on the morning of Wednesday to Rs 201 at closing on Friday. No one including the Government, the stock exchange or the regulator thought of issuing a clarification to cool things off. After all, why should they? It would only be the small investor who, pinning faith on the Minister’s statement, buys the OMC stock, would stand cheated and trapped.

And the small investors are coming back to the market in droves. Like in 1994, the ordinary folks have been lured by the charm of quick and big money from stock trading. The lift man and the road-side ‘panwala’ are making enquiries into the PSO stock. Since the share is expensive, it could not be some of their savings; it would have to be all their life-time savings. If the current rally isn’t a genuine one and is the doing of various interests—as some skeptics have reasons to believe—hundreds of such investors, now blindly following the big players are bound to come to grief. When the tables are finally turned, it would only be the small investors, who would be under them. There would be blood bath and no one would latter bother to count the small investors who would be killed and ruined.

The previous big bull market of 1994 had been fuelled by the foreign investors. This time, they are known not to be touching the Pakistani stocks with a long pole. A good deal of new funds pouring into the equities right now, could then be the expatriates’ money. If the market momentum has been built up on the promised fast-track privatisation of mega units: PSO, PTCL, HBL, UBL and others— which many players want investors to believe— than the decision by the Cabinet Committee on Privatisation (CCoP) on Thursday, asking for a re-bid in UBL sell-off, should be reason to cause a big setback—for it may be right for the Government to lick its lips in anticipation of extracting additional billions of rupees from the three deep-pocket bidders for UBL, but at the same time it does go to make the well-defined and laid-out process of privatisation a suspect. Will there be a major correction at the market. Will the bulls continue to charge, regardless? If they do, it could be the time for small investors to pause and pray— if they do decide to stay.