Where is the KSE headed?

Eight percent down; two percent up. What does that really mean for KSE-100? The former shouldn create panic, as much as some of us would like to believe; the latter shouldn be a matter of rejoice.
With the KSE-100 tanking over 1400 points on Monday, following a 700 point-drop on Friday, the market had shaved off about 2800 points beginning August 17. For fragile nerves, it was a major cause of worry leading to considerable uncertainty in a market largely dominated by bulls in recent years.
But think again! The fall of 2800 points equals only about eight percent in a span of six trading sessions, which is a peanut considering that the market is near 35,000 levels? Didn the market also fall about 9 percent and hit its year-to-date low of 28,648 points near March-end 2015. But it had bounced back again.
What does that tell you? Well, that this market seems to be pretty resilient around 28000-29000 levels. Recall also that the last time Pakistani rupee had crashed from 100 to 110 against the greenback in recent years, but the KSE-100 had instead kept on rising to find fresh highs.
What may be worrisome is the foreign selling at KSE, largely triggered by the global equities sell off following what Reuters dubbed as the Great Fall of Chinese Yuan. Just yesterday, foreign investors sold $19 million worth of equities at the local bourse. Thats nearly three times the size of foreign sell off seen the day before when the market had dropped 4 percent.
Again, that looks worrisome. But consider also that local individual investors, who had purchase merely $1.9 million worth of equities between August 17 and August 24, bought $16 million worth of shares yesterday. That shows the confidence is seeping back in some circles.
Still one would advise caution, which is not the same as panic. Markets are finicky and herd behaviour can turn the sanest investor imprudent. You never know; foreign selling at KSE sparked by regional sell off, which can be expected to continue sporadically for perhaps a week or two, can cause further slide at KSE. But as such it shouldn push the index below 29000-30100. Thats where a solid support seems to be at.
The recent spate of correction has come fairly late to the Karachi stock exchange, with regional markets starting to plummet much earlier. Arslan Asif, senior equity fund manager at JS Investments believes this disparity in responsiveness has reduced the discount at which KSE trades to regional markets. According to Asif, the KSE-100 historically traded at a 45 percent discount to neighbouring markets. Now though, after markets have seen considerable downside, that percentage has dropped to around 30-35 percent.
So unless regional markets bounce back sharply, that adjustment to historical discount may also push the index lower until it hits its support levels. The moral of the story: unless a major negative development springs up unexpectedly, the slide in KSE should be seen as an opportunity to go cherry-picking the stocks.