July 02, 2008	Wednesday	Jamadi-us-Sani 27, 1429

KARACHI, July 1: In the financial year ended June 30, 2008, the Karachi Stock Exchange produced a negative return of 11 per cent, which represented a screeching halt to the six-year-long bull-run.

In the six years from FY02 to FY07 the Pakistani bourse had given out a fabulous average annual return of 48 per cent.

In US dollar terms, the negative return for FY08 stood at 21 per cent, which was quite in contrast to the earlier six-year average of 50 per cent return.

A report produced by analyst Umer Ayaz at JS Global summed up the seven-year performance of stocks at the KSE with a detailed review of the latest year ended June 30, 2008. The outgoing year closed with the KSE-100 index at 12,289 points and the market capitalisation at $55.3 billion, which was off 17 per cent from 66.5 million at the close of earlier year.

The outgoing year witnessed the stock market peak to an all time high of 15,676 on 18 April, 2008, but that spelled the beginning of a downturn with the KSE-100 index closing almost 22 per cent lower from its highest ever mark.

Political uncertainty and weak macroeconomic fundamentals were pointed out as the major causes of the massive downward correction in the two and a half months, from April 18 to the end of the end of the year. Other factors that created depressing investor sentiments included steep depreciation in the value of the rupee against the US dollar and unfavorable balance of payments position.

Moreover, rumours regarding implementation of Capital Gains Tax before the budget and SBP’s continued tightening of monetary policy to curb soaring inflation also hampered performance of Pakistan’s equity market, the JS Global analysts noted.

It was basically the second half of the year, which pulled the market down. In the first half (July-Dec 2007), the market kept up its ascend gaining 2.2 per cent. But, owing to the reasons recounted above, the market experienced a pullback during Jan-June 2008 with a negative return of 12.7 per cent.

Analyst Umer Ayaz mentioned that the KSE did better than some of the other markets such as Taiwan, Malaysia, China and Philippines, but the Pakistani equity market’s performance was rather unimpressive, when compared to MSCI Emerging Asia (ex Japan), which also witnessed a slide, but pretty slower, by 6.6 per cent.

During the year, foreign portfolio investment in the Pakistani market was witnessed with deep interest.

According to the SBP cash flows numbers, during FY08, total outflow of foreign portfolio investments was recorded at $221 million as of June 27, 2008, as against net inflows of $978 million the previous year. While the inflow of foreign funds stood at $39.8 million during the first half of FY08.

Uncertain political environment coupled with liquidity crisis in international markets led to an outflow of $261 million in the second half. Since the start of calendar 2008, National Clearing Company of Pakistan Limited began rolling out data of foreign investments. According to their numbers, net foreign selling in the local market during second half of FY08 amounted to $250 million.

As regards the trading activity at the local bourses, the analyst noted that in the outgoing year, average daily volume in ready market stood at 241.6 million shares (up 14 per cent), whereas average volumes in futures market fell by 10 per cent and stood at 53.6 million shares.

In terms of value, average daily volumes were $411 million in cash market up by 11 per cent while in futures it was $143 million up 0.6 per cent. On week-on-week closing basis, the market witnessed 27 positive closings and the rest of the weeks ending in red zone.

According to the calculations of the JS Global analyst, fertilisers and E&P sectors remained top performers during the FY08 giving out returns of 18.5 per cent and 15 per cent, respectively in their capitalisation.

“Performance of the two index heavyweights was more than offset by a dismal show put up by banking and telecom sectors, which registered a decline of 40.6 per cent and 30.8 per cent, respectively,” the analyst’s report stated, adding that the banking sector had to bear the blow of removal of Forced Sale Value benefit which resulted in higher NPL’s for the sector.

Moreover, continued monetary tightening by the central bank, which manifested in the increase in discount rates by 250bps during FY08 also had an adverse effect on the sector’s performance. Similarly, telecom sector’s underperformance was mainly attributed to one off huge Voluntary Separation Scheme cost of Rs23 billion borne by the sector’s giant PTCL.