KARACHI, Jan 15: The Karachi Stock Exchange Index of 100 shares came crashing down by 525 points to settle at 16,108 points on Tuesday. It represented the heaviest single-day decline in over four years, since May 2008 and wiped off Rs130 billion from the market capitalisation.

The market, already jittery over the outcome of Dr Tahirul Qadri’s long march, took full brunt of the blow of totally unexpected Supreme Court order for the arrest of Prime Minister Raja Pervez Ashraf, which triggered panic selling, mainly by punters and speculators. Traders said that dozens of scrips touched their ‘lower locks’ — representing maximum of 5 per cent of the value that a stock could shed in a day. Fear of ‘margin calls’ forced weak holders to unwind their long positions. Due to extreme volatility, volume of shares traded jumped to 239 million which was almost three times the turnover of 88m shares on Monday.

In a bid to calm investors’ fears, many stock brokers tried to put up a bold face. Aqeel Karim Dhedhi, a major player, lamented that the market had been held hostage to uncertainty on the political front, which had dampened investor sentiments. He, however, recommended value buying for long-term investors. Arif Habib, another big broker, endorsed that view and said that unless things on the political front ‘get out of hand’, the dip in stock prices could be considered an opportunity to buy. Analysts said that despite the Pakistani equities having produced spectacular return of 49 per cent in 2012, they were still trading at discount to other emerging markets. A broker pointed out that the foreign investors did not stampede out of the market and the foreign portfolio outflow on Tuesday was minimal at $0.12m.

Nadeem Naqvi, the KSE managing director, affirmed that risk management systems were in place and that strong exposure management regime was "a good buffer in such uncertain market conditions". He thought that the meltdown was just 3 per cent, which he saw more of a ‘correction’. The KSE MD observed that unlike the previous meltdown in 2008, there was almost negligible leveraged position (purchase of shares on borrowed money at multiple times the equity). A domino effect was, therefore, unlikely this time around. Mr Naqvi said the valuation contraction should be seen as a reaction to the political uncertainty and its implications on the macro-economic policy.

Regarding the impact on macro economy, Sayem Ali, economist at Standard Chartered Bank, said the key concern for the economy was the possibility of a delayed outcome of negotiations with the IMF for a new loan, which the country desperately needed in the face of falling reserves and huge outstanding debt.

Brokers were unanimous in their view that the political uncertainty would figure prominently in the days ahead. “The sooner uncertainty over the caretaker government and election schedule was over the quicker the market could recover,” said a broker.

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