KSE Index falls 6.1pc in July-Sept; probe, weak global equities take toll

KARACHI: Pakistan’s benchmark equity index underwent a seven-year record quarterly slump in the three-month period ended September 30, 2015 as jittery local and foreign investors fretted over China-led global markets’ rout and an apparent regulatory probe.
Karachi Stock Exchange (KSE) 100-share Index fell 6.1 percent for the July-September period, which was last seen when a price floor was imposed at the local bourse in 2008 following the global financial crisis.
Market analysts said though the fundamentals were strong, yet the investigations by the National Accountability Bureau on the black money being channeled into the equity market kept the money flying.
However, some said this issue is blowing out of proportion, and have dubbed this as a rumor and exaggeration.
Analyst Shahbaz Ashraf at Arif Habib Limited said that the investors’ hesitation was largely attributed to rumors that certain names of the brokerage industry were under investigation by regulatory agencies.
“However, this issue has been vastly blown out of proportion, as the regulator [Securities and Exchange Commission of Pakistan] clarified that the action had been taken against a few brokers, who defaulted,” Ashraf said.
A dealer agreed that there were no broad investigations going against the brokers.
Analysts are optimistic of the investment outlook.
“With an improving macroeconomic outlook, attractive regional discounts of 36 percent and a major correction of 7.0 percent in September open up valuations and buying opportunities,” Ashraf said.
Other players also hold a sanguine view on the stock market based on the supportive investment landscape for equities shaped by the reasonable stock market valuations, benign near-term inflation and interest rate outlook, an expectation of healthy corporate earnings and ultralow yield on the alternative fixed income avenues.
Analyst Tahir Saeed at Topline Securities said falling global equity markets was the primary reason for the current performance of Karachi equity market.
Saeed said foreigners, having $6.5 billion exposure in the local market, have been net sellers.
Net selling by foreign funds amounted $179.6 million in 2015 to date, while the outflow was $105 million only in July-September.
An ex-director KSE said a large portion of the foreign portfolio investment was actually local money routed through global funds, and this money was being withdrawn from the market as regulations were being tightened.
Equity analysts, however, argued that this outflow was a global phenomenon and similar to other regional markets.
Concerns over slowdown in economic growth in regional market’s influencer China and Fed hiking interest rates impacted investor sentiments.
There has also been some political noise in the quarter as military operation, especially in Karachi, continued against the militant wings of various political parties.
An official said military and law enforcement agencies are clubbing the sources of funding of political, militant and criminal elements along with targeting the re-circulation of black money.
The situation has soured the relationship between ruling and opposition parties.