KSE equities in murky waters?

Reading stock markets is an abstruse business. And when the market dilly-dallies here and there without any real sense of direction or reason, it breeds frustration.
Such had been the behaviour of KSE of late, until Friday saw the benchmark index slide sharply in a nail-biting move that left floor traders even more perplexed.
After being caught in a tight range of 10400-10600 points since April 20, KSE-100 fell 2.67 percent to 10271 points - its lowest level since the April fools day.
The sell off is largely attributed to weakness in global markets on account of Greece debt woes amid rumours that a fat-fingered US trader erroneously sold $16 billion worth of stocks instead of the intended $16 million.
At the local bourse, foreign investors sold $9.4 million worth of equities on Friday - their biggest single-day sale since May 13, 2009. This was absorbed well by local investors who suddenly became buyers at the counter after having largely been sellers since the start of this fiscal year.
Official data show that local individuals invested $5 million on Friday, whereas mutual funds took nearly $3 million worth of fresh positions. Perhaps, they have turned bullish again after cumulatively selling $164 million of stocks in the calendar year to date.
If thats the case then one can expect a late reaction to the governments assurance that IMF will continue its support and also to the CSF inflows received last week. But given the markets waning momentum, it will have to be a strong rebound to put the bulls on track again towards the widely pitched idea of 11200~11300 points.
Alas! The odds don seem to be in favour at the moment. The index has slipped below its short-term moving averages, which typically isn supposed to happen in a bull run. Worse, the market is currently at its key support, which may not necessarily hold, if foreign investors keep selling like they did on Friday.
Whether they do it or not, its too early to say. Thats because while the bottoms may be falling at KSE, in terms of valuation, the market is becoming even more attractive. At current prices, the index offers one of the highest dividend yields in the region, according to KASB Securities last snapshot, with the lowest of price-to-earning multiples.
That and the expected opening of leverage counter may provide room for further upside, whereas any positive development on MSCI front can be construed as an additional sweetener.
Yet, there are reasons to be wary; sticky inflation is just one of them.
Budget is around the corner, and so are the chances that monetary and fiscal stimuli given by developed and emerging economies will be removed one after another, which can encourage continued sell off in the region.
And just as there are risks that NRO-related domestic political friction between the institutions may reignite, uncertainty looms over how will things shape up in the aftermath of the would-be Time Square bombing and its consequences on Pakistan.
Lastly, let there be no doubt that the bullish trend that began in January last year is gradually losing its strength. In each of the three northward moves since January 2009, KSE-100s return has decreased, and so has the average trading volume (see graph). Perhaps, it won be too paranoiac to erect shields against medium term losses.