ISLAMABAD, 14 October — In an unpredictable turn of events, and despite the prevailing nerve-wrecking political uncertainty stemming from the national elections, Pakistani bourses have skyrocketed, breaking their own, five year, record.
The stock market shot up 70.57 points between Oct. 5 and 9 — from 2,028.39 to 2,098.96. This is despite the Oct. 10 national elections, and the scheduled transfer of power to civilians on Nov. 1. Other news on the financial front — financial flows, foreign assistance, home remittances, imports & exports — too, appear upbeat.
In the short run, its good news for the investors, and those foreign and domestic fund mangers who lapped up Pakistani blue chips, ranging from telecom to fertilizers, with cement and pharmaceuticals thrown in. The bourses may — or may not — continue with their present unexplained bullishness. Will it be bulls or bears in the coming weeks? It will depend on who forms the government, with what political leadership, and the leaders’ survival and longevity. While the bourse stayed bullish, among other things, the exchange rate looks good, with dollar continuing its slide to a shade lower than Rs.59, from a high of Rs.67 a year ago. Imports and exports, both, are rising.
The official forex reserves are at an all-time high of $8.2 billion, and projected to cross the $9.0 billion mark by the end of December. Reserves, at the present level, are already double the IMF-prescribed $4.1 billion limit.
Shares moved up Oct. 7 as the new system of USTS went into operation for the first time in Pakistan. USTS keeps the names of buyers and sellers of trades, and other participants, confidential and undisclosed in order to ensure transparency of deals. Business is done through the automated trading system.
USTS will mean “an end to herd culture in stock market business,” says Karachi bourse’s Managing Director Moin Fudda. “KSE members have greatly appreciated the USTS initiative. Its implementation is very successful. The members are extending their fullest cooperation,” he said. KSE also plans to undertake several initiatives to improve the IT services to help members and investors. USTS has been introduced on the advice of Security & Exchange Commission of Pakistan (SECP).
The commission asked the KSE and other bourses to ensure “quality management for the benefit of bourse members.” The system aims at eradicating excessive speculation that has been a norm, rather than an exception.
It damaged the stock exchange image. Launching of a corporate and market promotion plan is also in the pipeline in order to improve investor confidence, especially to attract foreign fund mangers.
If all these initiatives really work and continues, it will improve the KSE image quite a bit from the previous investor impression of it being “a den of speculators.” It should assuage the confidence of foreign fund managers and portfolio investors in putting their money in Pakistani stocks, because of transparency of deals.
Day one on Oct. 7 saw a good deal of institutional purchases, a welcome sign for the new system. As a result, the Karachi Stock Exchange KSE-100 index rose 19.01 points to 2,047.40, up from, 2,028.39 at the previous week’s close.
The day’s turn over was 132 million shares that was less than the business of a normal day. But analysts project the volume to rise in about a fortnight as the new system gets through the paces. All the leading base shares were seen going up. The market capitalization rose by Rs.4.275 billion to attain a level of Rs.469.589 billion. It was a 3-year peak, with investors appearing unmindful of the outcome of the national elections.
Good dividend payments are also keeping investors and fund mangers on the prowl for promising buys. Telecom, electricity, fuel and fertilizers are potentially good buys.
Day two saw KSE-100 gaining a further 19.59 points, and rising to 2,066.99 Oct. 8. Analysts and bankers said, a number of investors with large balances in foreign banks, were investing in shares, in order to make this money “white.”
Finance Minister Shaukat Aziz says, on the back of the rupee’s strength against the dollar, “a reverse flow” is taking place, as money held abroad is being brought back to Pakistan. Day three saw KSE-100 rise further to 2,100.05 — a three year peak, although it, later, eased to 2,098.96 — a gain of 31.97 points on Oct. 9 from Oct. 8 — when the trading session closed.
The push was powered by strong foreign buying and purchases by domestic institutional investors, as telecom, electricity and petroleum marketing, cement, fertilizers and pharmaceuticals’ s hares stayed in the limelight. The market capitalization rose to Rs.480 billion.
While some analysts at the bourse were forecasting the KSE-100 index to rise to 2,300 points after the elections, others, however, are skeptical because they feel some of the shares are being funded by “speculative money.” In case this speculative money stays even after the elections, the bourse will gain strength, but if it is withdrawn, or it fritters away, the index may come down.
