Paradigm shift at KSE?

KSE-100s performance last week had a strange similarity with Afridis World Cup 2011 squad: just when you expected the ground to cave in completely, the prices, as did Pakistani team, bounced back.
After posting a nearly 7 percent decline in the preceding week, KSE-100 made a modest comeback of 65 points last Monday, as foreign portfolio investors poured in $2.2 million on a net basis.
But the striking movement was seen on Tuesday when the index soared by 319 points. The fact that the biggest single day jump since April 2009, occurred on a day when FIPI outflow was also at a multi-month high - of $3.8 million - begs further scrutiny.
In the last 294 trading days - Jan-2010 to date - only 61 sessions saw FIPI outflows. Out of those 61 days, 31 sessions saw the market fall, with an average of 113 points.
Of the remaining, 23 days saw the market rise modestly (with modesty capped at a rise of 50-60 points), with an average of 30 points. Only 7 times did the market rise significantly with an average of 164 points, which includes last Tuesdays 319-point hike.
Such is the relationship between KSE-100 and FIPI outflow, and in this context, Tuesdays rise hinted that perhaps the paradigm will shift - and that after several months of continuous selling, local players will stand up as net buyers.
This view was validated by market reports that NITs opportunity fund was seen aggressive last week, which, along with other asset management companies, bought some $2.5 million of equities on Tuesday. Even local individual investors became active last week - buying nearly $3 million worth of stocks.
The change of heart comes from local players renewed interest in banking stocks. Reportedly, as foreigners sold banking equities last week, the locals accumulated. And the graph here, showing change in prices, somewhat confirms that notion.
Then of course, there is the MTS hoopla. In a much-celebrated fashion, the leverage was finally brought back to life last Saturday, in an event marked by the fashionably late arrival of the Finance Minister Hafeez Shaikh.
The MTS, therefore, is seen determining the future direction of the market. "The unrest in Libya and Raymond Davis issue here at home may keep foreign portfolio investors hesitant for a while, but that is likely to be offset by local buying through the MTS counters," said Ahsan Mehanti, CEO of Shehzad Chamdia Securities.
But, on account of three possible reasons, that direction may not come for another few weeks. One, the actual implementation isn due until March 14; two, funds are expected to take time - including for board approvals - before they actually start dealing at the leverage counter.
And lastly, the conventional buy-on-expectation-sell-on-news factor. "We believe MTS should prove to be a short-term trigger, where investors will be eyeing implementation details in the upcoming week," noted KASB Research last week.
Yet while possible relaxation of fiscal targets by the IMF and re-introduction of leverage may be sentiment enhancers, political uncertainty, given Davis issue, and strained relations between the PPP and PML-N, and the expected withdrawal of portfolio funds from emerging markets, may be points of concern.
The economic climate - marked by rising power tariffs, deficit monetization, and galloping global food and fuel prices. - isn sanguine either, albeit sans external account picture.
In such an environment, too sharp a rebound last week suggests that caution will be reflected through a range-bound movement in the days to come.