Marked by two half hearted attempts for sustainable breakout towards 9500 points and beyond, the benchmark index Karachi Stock Exchange ended flat during the week ending November 21.
Volumes picked up to average 132 million shares last week, compared with an average 106 million in the fortnight before. Yet, the market lacked conviction and the necessary momentum to move forward. Twice it came down 9350-plus levels in a fashion that reminded floor traders of KSE-100s in-vain attempt to cross 10,000 points between October 8 and October 16.
The regular counter saw foreign investors pouring $17 million last week, while domestic fund managers bought $3.6 million worth of equities. Meanwhile, individuals and companies cumulatively sold some $20.6 million worth of shares where more than two-third of selling came from individuals.
Despite the foreign inflow the market lacked excitement. In part this can be attributed to the pre-Eid withdrawals by individuals planning to purchase cattle for sacrificial purposes. Really? Think again. While pre-Eid cash withdrawals may be a plausible reason for last weeks selling, it can be the sole reason behind all that offloading of portfolio by local investors since October.
Data released by the National Clearing Company (NCCPL) show that local investors, including individuals, banks, and mutual funds, ploughed out some $55 million worth of equities - $38 million in October and $17 million in the month to date.
Agreed, that if one must buy then one must sell, and so if foreigners are buying then locals must be selling, but if there is a party which is consistently selling or buying then its safe to construe that he has some privileged information.
To speculate on who has what information is not the purpose of this column. But here are a few things that investors should be reminded of.
First, the problem with widely expected discount rate cut of 50-100 bps this week, is that its widely expected, hence no motivation - no trigger to move forward as much is already priced in. Then there is a contrarian view - albeit in select corners of the money market - that the central bank might not even cut rates at all.
Second, local investors, like any local of any other country, have better understanding of domestic affairs, including security and political risks because its one thing standing outside and looking in and its another being a part of it.
So even if foreign investors have access to sophisticated information through their local brokers and other sources, chances are that local investors will outsmart them simply because their understanding of security and political risks, especially as dicey as Pakistans, is much better.
Third, foreigner fund managers have ample amount of zero-interest funds with special focus on emerging/developing markets and are investing in Pakistan because its cheaper relative to the region.
In short, as long as security and political risks prevail, the market will likely be driven by foreign investors with local investors on the sidelines. As for the benchmark index, it still looks too weak to rally back to 10,000 points any time soon without consolidating at lower prices level.