Surprising trend in Pakistani stocks

Although inflation has come down for the first time since 2002 to the long cherished single digit of 8.8 per cent from 27 per cent in 2007, more other indicators of economic activity show a waning economy and investors’ confidence seems deteriorating. Still there has of late been a rising trend in the country’s stock market and fotrein investment in floor trading also came. What is perplexing, however, is why the stock market alone is the major gainer when overall economy remains in a limbo? There is no indication either that investment by the corporate sector will grow even after the State Bank of Pakistan reduced its key policy rate since August 2011 by 400bps to 10 per cent and directed the banking sector to open its window on corporations and companies in the private sector. It is more than one year now that banks have only started considering the corporate lending. Still the surprise came when the Karachi Stock Exchange-100 index reached new heights during the last week, posting a weekly gain of 288.83 points with a turnover of over 601.5 million shares. However, trading value stood at Rs17 trillion, a trillion lower over the previous week. Tuesday was the first trading day after the Eid-ul-Azha, and began on a dull note with the index losing 16.79 points, on lower trading volumes. The repercussions of hurricane Sandy were felt globally with the closure of New York’s financial markets, and traders were cautious of taking any positions. The Lahore High Court’s decision regarding international calling rates pulled down PTCL shares, with the suspension of the International Clearing Mechanism which had been in place. However, the market saw accumulation of shares in the cement, banking, and fertilizer sector. Foreign investors, despite Sandy, bought shares worth $2.11 million, while companies were the largest sellers of equity with shares worth $1.75 million sold. Wednesday was more buoyant for the market with a gain of 111.51 points, and another historic high with the index closing at 15910.11 points. Volumes rose significantly and trading value had doubled on the same day. Higher international crude prices helped advance energy stocks, along with bullish sentiments in the cement sector. Foreign investors were once again active with equity purchases worth $2.78 million, bringing in the monthly figure to $38.5 million. The index rose to 15,962.37 points on Thursday, gaining over 52 points from the previous day, crossing 16,000 points on an intra-day high. Expectations of lower inflation leading to an interest rate cut kept market morale high, with foreign investors seen purchasing shares worth $6.1 million. The cement and energy sectors, along with other blue-chip scripts, raised the index to a new record. Stocks closed at a record-breaking high on Friday, with the index reaching 16,101 points, gaining over 139 points and over 191 million shares traded. Investors were bullish with consumer price index being reported at 7.66 per cent, raising hopes for a further cut in the State Bank’s discount rate. The cement sector remained in the limelight, while blue-chip stocks also helped in the market advance. Foreign buying was witnessed at $1.62 million, bringing the week’s net foreign inflows $12.6 million. Pakistan Oilfields was the most significant gainer, with a price increase of Rs24.17 over the week and turnover of 2.459 million shares. Another group subsidiary, Attock Petroleum, also gained Rs14.86 to reach price of Rs499.60 per share though it lost Rs9.81 with 6.87 million shares traded. This spectacular but surprise rise of the stock market is the first since the Pakistan People’s Party-led government assumed the charge in March 2008. The outgoing week also saw rupee gaining modestly in dollar-rupee parity. It is, however, yet to be evaluated if the weeklong upward spiral of the market was being driven by corporate earnings and to what extent is it speculative buying in the context of a declining interest rate environment. Ever since the State Bank started cutting interest rates, the only measure of economic activity has been the stock market, with values and volumes both registering increases. Corporate earnings in the listed companies are encouraging, but investment is still more or less nothing in value. Why the stock market increase against all economic odds, it is important to understand. Certainly, the hike needs to examined and the Security Exchange Commission may be asked to examine the whole episode.