Analysts suggested a “wait and see” approach for the risk-averse equity investors till the current political uncertainty in the country could be clear.
The KSE100 index showed, what stocks observers said, a “massive” decline of 5.8 per cent or 1,746 points during the month of August. This appears to be a record decline since August 2011 when the index was last seen posting a drop of 9 per cent.
Monday, the week’s first working day, witnessed bears dominating investors’ sentiments at the country’s largest Karachi bourse with KSE 100-share index shedding 74 points (0.26 per cent) to close at 28,493.74 points against 28,567.74 points of Friday last week.
“Stocks closed lower amid concerns for political standoff against protesters across the country,” viewed Ahsan Mehanti, a director at Arif Habib Corporation.
The trading volume shrank to 122.9 million shares compared to 187.8 million of last trading session. Of 325 scrips traded, only 121 could gain value with 185 others losing it and 19 witnessing status quo.
Huge losses on political crises, along with fall in banking spreads, the analyst said, played a catalyst role in the day’s bearish activity. Political deadlock, coupled with an instable rupee, impacted the sentiments, Mehanti said. The state-owned institutions and a positive CPI data for August’14 at 6.99 per cent supported to benchmark index, he said.
Overall, the trading value declined from Rs 9.8 billion to Rs 6.1 billion. Market capital, however, remained flat at Rs 6.7 trillion.
“The resolution of ongoing political unrest is expected to play its role in determining the direction of the KSE100 index going forward,” opined InvestCap analyst Abdul Azeem.
The benchmark index registered a “massive” decline of 5.8 per cent during August. “This immense setback is mainly due to ongoing political turmoil in the country as rising uncertainty on the government front is the major reason which turns down the investor’s sentiments towards pessimism,” Azeem viewed. Further, the analyst said, the benchmark index was on the bottom in MSCI Frontier Index return during the month under review and lost nine percent.
KSE lost identity amongst the regional peers by underperforming as the average return of the major MSCI indices remained at +1.7 per cent. While the overall average return of the sample countries was still at 0.2 per cent.
As for foreign equity flows, the analyst said, Pakistani equities failed to attract foreign investment as compared to Asia Pacific region. Net inflows of $ 25 million were received during August ($351mn YTD), against a whopping $3.0 billion ($41bn YTD) of inflows into the region during the aforementioned period.
“Taiwan and India were the top countries which managed to receive the major portion of the regional inflows by obtaining $1.6 billion and $1.1 billion, respectively,” he said.
Analysts, however, still see positive fundamentals for Pakistani equity market.
Azeem said volumes at the market, as measured by average daily shares traded, went up by 20 percent month-on-month (MoM) to 134 million shares. Trading activity was boosted by second and third tier scrips while the total traded value at the bourse dropped by 16 percent MoM to Rs 131 billion.
“Cumulatively, KSE-100’s returns during 8MCY14 went up by double-digit of 13 percent,” he said.
Advising the stocks investors, in his outlook on the ongoing political hustle and bustle in Islamabad, the analyst said “Wait till resolution”.
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