KARACHI – The Karachi Stock Exchange (KSE) has shown an impressive increase of Rs 196 billion in its market capitalisation a week ahead of the launch of the much-awaited Margin Trading System (MTS) today (Monday), which is being introduced in place of the badla system.
The market capitalisation of the KSE had fallen to Rs 3.037 trillion on February 25, but by March 4 the market capitalisation of the KSE edged up to Rs 3.233 trillion as Finance Minister Hafeez Sheikh announced the impending launch of the Margin Trading System (MTS) at the stock market on March 7. In last week of February the KSE plunged to 11,233 points and the market capitalisation dropped to Rs 3.037 trillion as the Pakistan Muslim League-Nawaz (PML-N) removed the Pakistan People’s Party (PPP) from the Punjab cabinet, triggering political uncertainty.
The PML-N’s decision, announced on February 25, eroded over 400 points from the KSE on Friday and the KSE-100 benchmark index dithered to 11,223 points, from over 12,500 points a week before. The news of the MTS launch from March 7, however, revitalised the market and players moved past the political uncertainty and tug of war between the political parties and started buying at the stock market, which raised the capital of the KSE by Rs 196 billion in the last week, bringing the total to Rs 3.233 trillion ($37.82 billion) on March 4 from Rs 3.037 trillion ($35.52 billion) a week before.
Last Friday, the KSE benchmark index surged to 12,000 points, gaining 766 points (7 percent) in a week. Last week foreign investors too purchased $2.80 million worth of shares as opposed to selling $5.44 million shares in the preceding week, anticipating growth in the stock market in the wake of the Finance Ministry’s decision to the launch the MTS. The MTS would enable stock market investors to borrow 75 percent of the value of their exposure (investment) from brokers/banks to buy shares at the stock market.
“The MTS will pave the way for further growth at the stock market, increase volume of trading and ensure better dividends to investors and brokers,” said Pearl Capital Management Chief Executive Saad Bin Naseer. Badla financing was suspended at the stock market in April 2007, when the market crashed following the Lal Masjid operation, dismissal of Chief Justice Iftikhar Muhammad Chaudhry by former president Pervez Musharraf, and the global economic meltdown. Since then the volume and value of shares had declined significantly, causing enormous losses to investors, listed companies and brokers, Naseer said.
From Monday onwards, brokers will be able to provide a 50 percent cash facility to investors under the MTS, enhancing the buying power of the investor, he added. He said the MTS would augment the value of blue chips, which have declined from 700-1,000 per share to less than the per kg price of potatoes or tomatoes because of international and domestic financial crises and political instability.
