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A change of hands is taking place at the Karachi Stock Exchange. After months of reliance on foreign portfolio to drive KSE-100’s rally, the dilly-dallying on the part of foreigners has now forced the market to think.

The phase is marked by price weakness, falling volatility and decreasing trading volume. KSE data show that the benchmark index slipped marginally during the week ending March 25 – 53.6 points to be precise.

Average volatility, crudely measured by the difference between intraday high-low, eased to 163 points last week from 216 points in the week before. Last week’s turnover also squeezed to an average 62 million from 112 million in the week before.

But what is the market thinking? Ordinarily, one could have attributed the slow days to the preference to wait-and-see before the monetary policy decision that was announced on Saturday. The policy decision, however, was no news as such, because most, if not all, participants had already been expecting a status-quo.

“Interest rates are not expected to rise this time, and the market already anticipates this,” Arif Habib Investments’ CEO Nasim Beg told BR Research before the central bank’s announcement. Beg added that expectations from the fiscal side were also positive, that also gives credence to the interest rate view.

 

And yes, indeed, things seem to have improved on the fiscal front -- at least on paper.  Plus, given the IMF pressures behind the drive for fiscal austerity, one can expect things to move along the right path.

One thing that could be worrying the market is the rise in global oil prices, and the potential havoc it can play with the economy. “At this level, global oil is still manageable, but if prices rise significantly then it could be troublesome for the economy,” said Habib.

However, knowing the overall historical short-sighted nature of most KSE participants, they should be playing deaf ears to Habib’s word of caution and focus instead on the potential gains in E&P stocks.

But even that is not happening. According to data compiled by khistocks.com – BR’s stock portal – the oil and gas index has shed more than 5 percent in the last ten trading sessions – despite the fact that global oil prices are hovering above $110 per barrel.

One aspect troubling the market, therefore, is “the less-than-expected volition expressed on the MTS counter”, according to leading broker Aqeel Karim Dhedhi. And as the graph shows, the selling by the foreign investors also hasn’t been absorbed through leverage trade.

However, last week’s FIPI inflow of $4.7 million, the first weekly inflow after two weeks, might be taken positive by the investors.  “Regardless of the fact that foreigners are still net sellers on a month-to-date basis (with an outflow of $16.9 million) the slowing pace of FIPI outflow might boost some confidence,” says Dhedhi, who adds that mutual funds are sitting on plenty of cash on the current levels.

If Dhedhi is right, then last week’s consolidation may well prove to be preparing grounds for a sharp rebound rally this week, with KSE-100 targeting 12,000 points in the first go. If he is not, then perhaps it would be better to stay on the sidelines than to take part in a market where foreigners have seemed to have lost their once-strong affinity.


 



 
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Annual2012/13
Foreign Debt $60.9bn
Per Cap Income $1,368
GDP Growth 3.6%
Average CPI 7.5%
MonthlyMay
Trade Balance $-1.558 bln
Exports $2.117 bln
Imports $3.675 bln
WeeklyJuly 10, 2014
Reserves $14.638 bln