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| November 06, 2006 | Monday | Shawwal 13, 1427 |
Bourses fail to recover losses despite rally
The stock market could not recover its initial losses despite witnessing a strong weekend rally aided by heavy buying in response to the postponement of new risk management system.
However, analysts believed that the next trading week could be eventful as investors were expected to take an objective view of the current issues and react accordingly.
The stocks could not recover fully the mid-week losses due to an early massive battering caused by the panic-selling. The situation was triggered by the Security & Exchange Commission of Pakistan’s new trading rules.
Yet, some leading stakes managed to recoup a good part of their initial losses on late covering purchases, aided partly by a positive outcome of the Islamabad meeting.
The rescheduling of new risk management system up to December 6 and an increase in the CFS to Rs55 billion generated active short-covering purchases during the weekend session, enabling the index to recoup some losses.
The sailing next week was expected to be pretty smooth and the market could establish new chart levels as there was a lot of pent-up demand, notably from foreign investors at the current lower levels.
A high-powered KSE delegation held detailed discussions with the Chairman of the Security & Exchange Commission of Pakistan (SECP) on November 2, on the revised risk management rules and its negative fallout on the market.
The wiping out of 500 points or four per cent from the index and an erosion of well over Rs100 billion from the capital in mere three sessions sent waves among investors with panic rolling all-around. And to forestall the market’s virtual crash reminiscent of the March 2005 and June 2,006 episodes, the KSE high-ups rushed to Islamabad to save the situation from further aggravation. The rollover problems in the October settlements also accentuated the scenario.
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Earlier, the 100-share index took a massive plunge on panic-selling triggered by the reservations of brokers over new trading rules which were to be effective from November 6. The KSE, though managed to finish well above the week’s lows at 11,246.71 points but were off 281.56 points, wiping Rs63 billion out from the market capital at Rs3,097 billion.
But some others attributed the sell-off to the rollover week and higher leveraging in the rung-off October settlements. A tight money market further accentuated the situation leading to panic-selling to meet the clearing demands.
The bull rout was total for the second session in a row as selling offers far-outweighed the buying ones, said a leading analyst while commenting on the falling market and prevailing panic. Everybody wanted to get out of the market irrespective of the massive trading losses, he added.
Small investor will again be the main losers as big ones have more than one exit points to bail themselves out in a situation leading towards a market crash, investors said adding that the market had crashed by more than 500 points eroding billion of rupees from the savings of small investors.
The SECP, an apex regulatory body for the bourses, has through a directive ordered stock exchanges to operate under new rules and regulations framed by it leading to more transparency in the share business.
Under the new rules, deposits against broker exposure limits will double, said a leading stock analyst from where additional funds would be raised to meet the margin demands in prevailing tight liquidity market.
In some cases deposit demands against exposures could rise to 100 per cent as it will cover both selling and buying operations, he added.
The current confusion about the new rules was expected to be over possibly by the weekend, said some others adding that if the fears of brokers were allayed then the market could rebound by the same amount as did it had lost during the last two sessions.
All, however, was not that bad with the broader market as some leading shares managed to put on good gains under the lead of Shell Gas which was under pressure on post-dividend selling and the Colgate Pakistan. Leading bank, oil and blue chips such as the Lakson Tobacco, the IGI Insurance, the Adamjee Insurance, the EFU General and Life, the Arif Habib Securities and several others finished steady.
FORWARD COUNTER: Barring the OGDC which finished lower despite the weekend rally, all other active issues, notably the MCB, the National Bank, the Pakistan Petroleum, the Pakistan Oilfield, the Fauji Fertiliser Bin Qasim and some others ended modestly higher.—Muhammad Aslam
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