KARACHI: The last trading session before Pakistan enters the MSCI Emerging Markets fold on Thursday had some surprises up its sleeve. Investors watched in disbelief as the trading screen started to turn red right from the start.

By the end of the day, the KSE-100 index had plunged 861.59 points (1.67 per cent) to close at 50,591.57 points.

“While everyone was excited over the possibility of inflow of $200-$400 million from Emerging Markets passive investors/funds on rebalancing, the massive outflow was not quite expected,” said Raza Jafri, director research at Intermarket Securities.

Other market experts said investors had built up positions in the six ‘main board’ stocks eligible for entry into the EM, which had been overbought, raising their prices at considerable premium to their ‘target price’.

But the avalanche of ‘sell’ orders from the foreign funds in frontier market who hold estimated $7m worth equity of PSX and the local market participants, mainly the mutual funds, brought down all six of the target stocks to close near their ‘lower circuit’ – maximum 5pc decline in a scrip permissible in a single day. HBL fell 4.75pc, UBL 4.76pc, Lucky Cement 4.70pc, OGDCL 4.35pc, Engro Corporation 4.49pc and MCB Bank plunged 4.83pc.

Since the six heavyweight stocks have combined a weightage of 30pc in the KSE-100 index, they dragged the entire market into deep red.

The six MSCI EM entrants, UBL, HBL, Lucky Cement, OGDCL, MCB Bank and Engro Corporation accounted for $308m or 60pc of the ready market traded value of $500m (Rs53 billion) on Wednesday. Four of the six, except Engro, were also among the top ten volume leaders that contributed 100m shares to the 411m shares that changed hands on Wednesday. Engro was however ahead of the pack in regards to value of shares traded at $83m, making 16pc contribution to the aggregate market traded value.

According to the defined procedure by the regulators, on Wednesday after the market’s regular closing timings at 2pm, half an hour was given as cooling period where old orders were flushed. Between 2:30pm and 3:00pm, the market accommodated new orders in order of priority, but without change in the closing price.

According to a source close to the market, trading of Rs5bn was in ‘future contracts’ and Rs28bn took place in the Negotiated Deal Market (NDM), which together took the traded value to Rs86bn on Wednesday. As expected the traded value of stock stood at over 5 times the six-month average daily traded value of Rs16bn.

Around 14 brokerages cater to the foreign investors. Kamran Nasir, CEO at JS Global Capital – the biggest among the players – told Dawn the aggregate traded value on Wednesday amounted to $805m of which orders of $300m or over 30pc were successfully executed by his firm alone.

Published in Dawn, June 1st, 2017