KARACHI: While celebrating Forbes Magazine’s ranking of the Pakistan Stock Exchange (PSX) ahead of the stock markets of China and India, excited investors on the PSX fell over each other on Friday in grabbing whatever they could lay their hands on.

With a 20 per cent gain in the past 12 months, Forbes ranked the PSX ahead of Asian giants China and India, which came limping behind with an upside of 9.8pc and 12.77pc, respectively.

On the last trading day of the week, the trade volume on the PSX shot up to 851 million shares, breaking an 11-year record.

Foreign funds, though still reluctant and more into selling, as well as local institutional and individual investors seem to have shaken off the fear of low GDP growth and terrorist attacks. As all those are on the mend now, the mercury is rising in the barometer, signifying the improvement in the economy, thanks in part to the China-Pakistan Economic Corridor (CPEC).

Although there is a lurking fear on the political front, the KSE-100 index has a while ago crossed the 40,000-point barrier, the trigger being the investors’ anticipation of huge inflows upon Pakistan’s re-entry into MSCI’s emerging market category next June. There is little doubt that good times are rolling on the PSX.

However, there is a fly in the ointment. Forbes reported that Pakistan’s stock market business volume has jumped 20pc in the last 12 months. For most sessions since the start of this year, the second- and third-tier stocks have dominated the trading activity, with small-cap stocks almost always qualifying as the top-five volume leaders.

Analysts at brokerage Intermarket Securities have worked out the performance of top-10 average volume leaders for the current month to date. While the KSE-100 index has gained 1.4pc, ‘penny stocks’ have reaped a harvest.

WorldCall Telecom, which closed on Friday at just Rs2.83 a share, was at the top of the volume leaders’ list with 115m shares traded. The stock has gained 76.9pc.

Similarly, Pace Pakistan with the market price of Rs8.79 a share is up 20.6pc, Bank of Punjab quoted at Rs12.28 a share is up 39.2pc and Azgard Nine tagged at Rs6.74 a share has added 56pc to its value.

Other small-cap gainers are TRG Pakistan (19.2pc) Dewan Cement (17.5pc), Dewan Salman Fibre (89.5pc), Byco Petroleum (3.5pc) and Sui Northern Gas Pipelines (6.2pc).

All of that raises a forest of question marks. How much contribution to the market gain can be accounted for the rise in the stock prices of second- and third-tier stocks, which are primarily the favourites of small investors although bigger players love to call them ‘katchra items’?

And even a bigger question: is the spectacular rise in the prices of those stocks justified or based on rumours that will eventually be dumped by clever rumour-mongers who will make a fortune at the cost of small, unsuspecting investors?

Published in Dawn September 17th, 2016