KARACHI, Dec 21: In the last six trading sessions from December 14, the KSE index of 100 shares has plunged by a massive 681 points and lost Rs185 billion of market value of all shares combined.
Stock brokers, regulators and investors are blaming everyone but themselves. Fingers have been pointed to this Tuesday’s event of Thailand’s foiled attempt to impose capital controls on foreign capital inflows in a bid to stem appreciation of the baht, which is believed to have shaken foreign investor’s confidence across the emerging markets.
“The impact is not as serious as was felt in 1997, but it nonetheless has taken the toll,” said Nadeem Naqvi, CEO at AKD Securities, speaking from London. It will be a couple of days more before the exact figure of foreign inflow or outflow in equity markets are calculated and placed on the SBP website.
But the episode is just two days old. So there have to be other reasons. The stock brokers are sore over the tone of two ladies: Kashmala Tariq (member NA standing committee on Finance) and Shamshad Akhtar (Governor SBP). The former is doggedly chasing the case of the stock market crash of March 2005, while the SBP governor’s constant urging to banks to raise profit on deposits is unnerving investors who worry about the hit on earnings.
Banking has proved to be the best performing sector this year, due to high spreads and staggering growth numbers. “If bank stocks fall, what is left?” asked an irate investor. The honeymoon with cement scrip’s is over after the break-up of ‘cartel’, which has seen a drastic drop in price of concrete per bag to just about Rs190. The consumers’ gain is the industry’s loss and most ordinary people are happy with cheaper building blocks to construct houses. Faisal Shaji, head of Research at CapitalOne Equities puts the blame on the country’s course towards ‘trading economy’ and a habit to consume rather than to save. “Personal consumption to GDP ratio was below 70 per cent”, he said adding that it had now climbed to over 78 per cent.
Individual investors are seeing their portfolio evaporate and so are the mutual funds. A manager with considerable sum of money under his control in various funds claimed that except one or two, all mutual funds had returned negative Net Asset Values (NAV) since July this year.
Almost every participant and analyst admits a total loss of confidence of small investors in the market. One indication of which is the shrinkage of volume of shares traded to just around 100 million, which is about a quarter of what the market saw in hay days.
The reasons are counted as uncertainties on many fronts. What is to come out of the dissection of forensic report on stock market crash of March 2005; the adhocism and beauracratic style of market management by the regulators; their lethargy that resulted in the Callmate case which is haunting the CFS market and no one knows at how low a price will the scrip emerge after it frees itself from suspension; the brokers complaints of ‘over-regulation’ and uncertainty on the new Risk Management Systems (RMS); worries over liquidity and the worst kind of volatility now being witnessed in the market. Those are on the sentiment side.
On the fundamentals, market participants believe that there is nothing to be cheerful about either. “Weak economy base, vanishing industrial output; high prices of gas and other utilities and the demise of the country’s mainstay textile, particularly the knitwear industry; weak institutions and political uncertainties haunt the investors”, says an analyst. “The rulers appear to have put ‘security’ on the front and ‘economy’ on the back burner”, said another.
But it would be premature to wash hands off the market. There still are fundamental values, say some analysts, mainly in the oil and gas exploration and production (E&P) sector which has underperformed the market.
Optimists hope that investor would return after the holiday season is over and new corporate earnings reporting season begins. Pakistani stocks are currently trading at price-to-earnings multiple of just around 11x and at even lower 8x on prospective earnings of 2007. A fund manager was asked whether he thought the shares needed to shed further values to be attractive.
“What?” he retorted, “Stocks such as NBP have dropped from Rs265 on December 1 to 224 currently,” he said and added, “Do you now want it for free!”
