"I don know whats going on in the market, I don know where is it going, and I don know what hey are going to do with it...quite frankly, I don even know whats going to happen to us". These are the thoughts that currently echo in most trading rooms in and around the Karachi Stock Exchange.
But who are hey; BR Research inquired one senior participant (who chooses to be left anonymous). "What do you mean; its the hidden agenda to kill the market...just a mission to destroy the broking business by those who hold a professional jealousy against brokers".
Of course, BR Research doesn know of any such hidden hand. What it does know is that trading volumes dropped to multi-month lows since the implementation of CGT on July 1st. KSE-100 turnover in the first two days of July averaged just 10.7 million as against an average of 77.2 million in June.
What is also known is that off-market transactions have shot up lately, from an average 8 and 9.8 million in the first two weeks of June to 51 and 66 million in the weeks ending June 25 and July 2 respectively.
For lack of a definitive and clear cut answer, the phenomenon of higher off-market transactions amid lower volumes on the ready board can be attributed to several reasons.
It could mean that the smart money is relocating its portfolio without influencing market prices, as even a slightly higher quantity of trades executed through the regular terminal can sharply affect prices, given shortage of free float and drying liquidity.
It can also mean that certain investors are selling from their enami accounts, exiting the market to avoid the documentation of their source of funds. Though, why they would do so is inexplicable as FBR has repeatedly said that investors will not be harassed.
The phenomenon may also mean that investors simply don wish to day-trade in the post CGT regime; settlement quantity at NCCPL as a percentage of total trading volume has been gradually rising over the last month, implying that intraday traders are turning shy.
If this trend continues, then expect the brokers to cut their employees salaries, if not right size their businesses.
But falling regular volumes may just be a pressure tactic to either get CGT withdrawn or to ensure a friendly, less stringent leverage system to the likes of good old Continuous Funding System.
Though, CGT is less likely to be withdrawn on fears of a political backlash, given the aversion against the currently proposed form of margin financing and margin trading, and keeping in mind that historically brokers have been successful in getting what they want, the latter may be the likely option.
Yet the bottomline is that if investors were really seeing value at this point, they would have been busy accumulating at current price levels. But they haven . On a net basis, it is still the foreigners who are buying and not the local ones - that too in relatively smaller quantities compared to those seen in and before April.
In other words, it may be deduced that local investors don see the prices being attractive enough to offset the perceived uncertainty arising from the macro economic and political front.
And knowing that local investors tend to better understand the domestic environment, one can assume that somewhere near, a big black bear is getting hungry.