Current year's trading volumes at KSE declined to 122 million shares

Trading volumes at the local bourse drastically declined to 122 million shares during the current year, 29 percent lower than previous year. The average daily trading activity was 47 percent low as compared with average daily activity of last 10 years.
"The declining trading activity was mainly due to absence of investor-friendly derivative product and imposition of capital gain tax at a time when investors are still risk averse after the infamous 2008 crisis", Muhammad Sohail, an analyst and CEO of Topline Securities said.
Interestingly the extent of how dull the trading activity was can be judged from the fact that investors bought and sold shares worth Rs 1.06 trillion in last 52 weeks which is equal to three weeks trading seen in February 2005, he added. In value terms daily business of Rs 4.4 billion ($51 million) was lower by 41 percent from 2009 and 73 percent from last 10-year average, Sohail said.
Though in 2001 the volume was 96 million shares (Rs 3 billion) a day but at that time the market size was also small with average market cap of Rs 337 billion ($5.4 billion) compared to average market value of Rs 3 trillion ($35 billion) in 2010. Sohail said that the imposition of capital gain tax and the uncertainties on its modalities affected the trading activities of investors who were already missing the investor-friendly leverage product. That is why volumes in second half of 2010 fell by 40 percent from first half volumes.
He mentioned that in terms of turnover velocity (volume divided by market cap) which is a better and relative measure of market depth, Pakistan's turnover velocity in 2010 was 37 percent compared to an average of Asian markets of more than 100 percent. Pakistan's turnover velocity in 2003 was at record 490 percent compared to Asian average of 80 percent making it one of the most actively traded markets at that time. Thus the once most liquid market of Asia is suffering from low volumes thereby making impossible to execute large orders. "We believe that the foreign flows of $1.9 billion (gross buy of $1.2 billion and gross sell of $0.7 billion) were far lower in relative terms than what was observed in other similar markets", he added.
With only one week to go, Pakistan market gained 26 percent ($24 percent) in 2010. Amongst the local investors there were very few winners. A few investors have minted money due to low volumes and due to the fact that index gain was mainly driven by heavy weight OGDC.
The OGDC that's more than 80 percent of float is estimated to be owned by foreigners; its share in KSE-100 Index has jumped to 25 percent now from 19 percent at start of the year and is distorting the so-called representative KSE 100 index. The stock that used to be the top traded stocks has fallen to number 5 in 2010 as the local investors don't have large quantity of this stock to trade, he said.