KSEs trend points to a hollow rising

10831. Thats the level KSE-100 index can potentially achieve if the stocks covered by BMA Capital, AKD Securities and KASB Securities hit their average fair value estimates*.
In case, prices soar above their computed rates, the index can potentially reach up to 11500~12000 points this year - a level many domestic brokers have been pitching for long.
Either way, despite having risen to its highest point, since late August 2008, on Friday, the benchmark index still offers a return of 8 to 14 percent at current prices.
Yet, it appears nobody seems to be paying any heed; neither to the potential upside nor to the brokers.
Data released by NCCPL shows that while foreign investors have been buying profusely, local investors have been mostly sellers. In March to-date alone, foreigners bought a whopping $53.3 million worth of equities at the regular counter.
The supply, of course, came from locals where individuals sold $15.6 million worth of stocks, while banks/DFIs and asset management companies offloaded $29.23 million and $8.7 million respectively.
Apparently, domestic players are cash starved.
"Liquidity crunch, where the government is aggressively borrowing (through T-Bills and National Savings at 12-13% approx), is the main reason why locals were net sellers and which is why there is little enthusiasm amongst the local investor community," wrote Mohammad Sohail, CEO of Topline Securities, in his weekly research note.
But that isn the only reason, as following the resignation of the finance minister and the governments failure to fill the post so far, sustainability of the stabilization plan has come under some doubts.
"The resignation of finance minister....just days before the VAT law was due to be presented to parliament for approval, has made markets nervous. Any delay in implementing VAT will have negative ramifications for the public debt position, relations with the IMF, and policy makers ability to bring down inflation," notes Sayem Ali, an economist at Standard Chartered Pakistan.
The mother of all worries, however, remains the security situation.
Buoyed by foreign inflows, the market may have ignored the bomb blasts on Friday, but the series of low-intensity blasts on Friday evening will make nerves jittery, sooner or later.
Though, gains have overstretched too sharply too soon, punters may still push it for 10,400~10,500 points. But when the euphoria of 10,000 points fades away, the reality is going to hit investors hard.
And, when prices eventually crack, KSE-100 might not stop tumbling until it finds feet at its 200-day moving average of 8700~8800 points.
* Their combined research universe represents about 78% of KSE-100 market cap. Average means arithmetic mean; but absolute value is taken if a stock is covered by only one of these brokers.