When the SECP approved the concept of the margin trading system on Wednesday, a wave of euphoric cellular messages spread across the equity investment community in Karachi - a sign that indicated that perhaps KSEs benchmark index would rise sharply on Thursday.
But no! Instead share prices ended largely flat. One could attribute this lacklustre behaviour to the additional risk mitigating measures appended by the SECP, or the fact that KSE-100 needed a mild correction after some 500-point rise in the preceding ten trading sessions. A third, and more plausible reason, appears to be the buy-on-rumour-sell-on-news factor.
This means that even if the market starts inching upwards, one should expect at least another round of gyration. And thats because a number of MTS related factors are still unknown.
"The key is in affordability, and in access to credit for investors, especially retail investors," says Khurram Shehzad Head of Research at Investcap Securities. Access to credit can be difficult - not just because of the overall crowding out phenomenon, but also because of stringent margin requirements and some KYC measures.
As for the affordability, there seems little scope since a maximum rate of 1M KIBOR plus 8 percent, which roughly translates into 20 percent - a number that is expected to rise when the central bank decides to jack up interest rates to check inflation.
The bottomline is that one can expect "one-time sentiment driven northward rally", according to Shehzad, but don expect the market to jump a 1000-points, because essentially the fundamentals, which are currently either weak or uncertain at the moment, are going to rule the roost.
Needless to remind that if there is one thing preventing the market from falling further, aside from foreign buying, it is lack of volume i.e. lack of momentum.
When the volumes rise after the advent of leverage, there are risks that downward momentum would gather steam as the process of price discovery would become more efficient. If thats whats needed to rationalise prices, then lets bring on the MTS.
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