The Karachi stocks market tumbled Wednesday as the analysts started calculating the possible adverse impact the country’s fragile equity market is going to brave in case the United States attack Syria, a major oil producing country.
The day saw the KSE 100-share index nose-diving by 287.38 points or 1.28 percent to close at 22,236.33 points. The market also ended on a bearish note Tuesday with the benchmark index closing lower by 1.7 percent at 22,523.71 points.
The KSE 30 index too set in the red zone and closed at 17,289.23 points, losing 191 points.
“Like most of the global equity markets, Pakistan stocks fell 1.7 percent Tuesday and 2 percent on Wednesday morning amid uncertainty on likely war in Syria,” said the analysts at Topline Research.
They said with no major selling by foreigners, the country’s largest bourse totally ignored the good news on trend of local interest rates. The trading volume at the KSE’s ready-counter were counted higher at 265 million shares against 187 million of the previous day.
While the market capital grew to Rs 5.493 trillion the trading value contracted to Rs 9.74 billion compared to Tuesday’s Rs 6.85 billion. Some 352 scrips were traded, of which only 80 made it to set positive unlike 280 others who lost value and 12 seeing the status quo. Bank of Punjab was the volume leader with 38.43 million of its shares traded. The company shares, however, eased down to Rs 11.99 from Rs 12.49.
As the clouds of war are hovering over Syria, the equity analysts have started predicting its possible fallout on the local stocks market. “After the finance minister hinted at no change in monetary stance, yields on benchmark 1-year Tbill fell 45bps the other day, which stock market players completely ignored,” said a report issued Wednesday by Topline Research. At all markets uncertainty and confusion affect the investors’ sentiments. “This is what’s happening with Pakistan stocks that are undergoing a correction phase after rallying 49 percent in 2012 and 33 percent so far in 2013,” said the report. Last month alone, it said, Pakistan benchmark index gained 11 percent and that’s why in August it is down approximately 5 percent to date.
“Most of the stock markets fell on Tuesday as geo-political tensions flared on the possibility of an impending military strike against Syrian President Bashar al-Assad’s forces,” it added.
As US and its allies are drafting plans for a potential air strike, investors ditched stocks in favour of assets less exposed to global risk.
“This has led to increased investor focus towards bonds and commodities (gold), causing them to perform well,” said the research report.
MSCI World Index fell 1.3 percent Tuesday while MSCI EM was down 1.9 percent and MSCI FM 1.7 percent.
With emerging markets like India, Philippines, Indonesia amongst others were already under pressure due to potential slow down in Fed’s bond buying spree, the fear of attack on Syria has added fuel to the fire.
“Pakistan is not directly involved in that region so we don’t expect any major consequences on Pakistan on the foreign policy front,” said the report.
However, it said, rising crude oil prices pose some risks as oil and petroleum products have 33 percent share in the total imports. A $10 increase in oil price increases annual oil import bill by $1.5 billion.
“We maintain positive stance on Pakistan stocks in medium-term and believe that new business-friendly PML-N government’s fiscal and energy sector reforms will help in revitalising the economy that grew by only 3 percent a year on an average in last five year,” the report added.
And the gain from stock market in second half would be lesser than in first half due to election euphoria.
Pakistan market, despite rallying, trades at FY14E PE of 7.7x with estimated dividend yield of 7 percent.
However, net foreign buying of US $406 million in the last 12 months may cause some more correction in the market as investors think that foreign funds will sell some of their positions in Pakistan.
