KARACHI - The Board of Directors of the Karachi Stock Exchange on Wednesday exercising the powers described in the Regulations of the Exchange, decided to place a floor based on closing prices of securities of Wednesday, August 27, whereby the individual security prices will remain free to trade within the normal circuit breaker limits, but not below the floor price level as mentioned above. Meanwhile, the Securities Exchange of Commission of Pakistan (SECP) has endorsed the proposal of KSE directors moved earlier in the day to freeze the share prices, reported a private TV channel late on Wednesday night.
It was decided by KSE Directors to introduce the above mechanism effective from August 28, 2008 till further notice. Decision to this effect was taken holding extensive consultations with stakeholders (including its members, fund managers, other exchanges, etc) held an emergent meeting on Wednesday, a Press note issued by KSE said.
However, the regulator SECP has not given any decision yet to the proposal of the board of KSE in which the board demanding freezing of the stock market at 9,144 points amid continued recession and unabated downslide at the stock market since last Wednesday
But the board of KSE observed that the continuous sharp decline in share prices can have implications for the wider financial system. With this in mind, the Board, in terms of the powers described in the Regulations of the Exchange, decided to place a floor based on closing prices of securities of Wednesday. The Board will engage SECP, State Bank of Pakistan and the Ministry of Finance to develop medium term measures for achieving stability in the capital market.
The much-awaited decision was taken after the proposal sent by the KSE board to save the battered investors and members of the stock market from default.
However, some brokers of the KSE said that SECP has only verbally approved the demand of members and board of KSE but no official letter was received so far in this regard from the SECP.
Stocks have lost over 45 per cent since January, including more than 12 per cent in just one week after the resignation of former president Pervez Musharraf and subsequent breakdown of the ruling coalition.
While on the other hand, the board members of the KSE were not confirming the approval from the SECP till filing this report. They said that they have also been waiting for the final verdict of SECP on this issue for last several hours.
Board members said that they have sent a proposal to SECP for freezing the market on the request of the members of the KSE.
Earlier, the crisis-ridden market continued its bearish trend over the last seven days mainly owing to the new wave of instability on the political front, which emerged after the resignation of former President Pervez Musharraf that led the benchmark KSE-100 to erode 1,574 points, 15 per cent since last Wednesday.
KSE-100 index on Wednesday crossed the psychological barrier of 9000 marks by falling lower down to 8,999 points and then recovered to close at 9,144 points, registering decline of 285 points.
Market capitalisation ended at Rs 2.860 trillion on Wednesday, reflecting decline of Rs 84 billion against the capitlalisation recorded a day earlier.
Free float KSE 30-share index plunged by 391 points or 3.72 per cent, closing at 10,144 points. However, volumes increased by 6 million shares to a level of 94 million shares.
Steep decline witnessing over the last six sessions have crushed the confidence of investors, which was seen since the early morning trading on Wednesday, when they opted for selling shares in panic, as result of which most of the blue chips retreated to lower locks and index further sank by 430 points.
The pathetic situation of the stock market and fear of protest from the small investors, who are believed to be on the verge of default brought the management of the stock market to beef up the security steps to thwart any untoward incident, as the unpleasant situation emerged few weeks back following the sharp decline at the stock markets.
Brokers attributed the colossal decline in stock markets to the dreary position of local and foreign investors mainly because of discouraging political developments in the county coupled with economic woes, like trade deficit soared by 49.19 per cent, current account deficit jumped up by 24 per cent to US$ 1.10 billion in July-08, declining forex reserves and liquidity crunch that kept haunting the equity markets.
This aggravated foreigners concern over the country's economic stability as they remained net sellers, they added.
Brokers said that gradual but consistent outflow of portfolio investment was a major blow for the equity markets of the country.
They said that the local investors contentedly invest at stock market when they see the portfolio investment pouring in the country.
'The outflow of huge foreign investment from the stock market is very upsetting because it has further shattered the confidence of local investors', a stock broker said.
He said the political uncertainty was triggering foreign investors sentiments but the worst may be over by September 6 after the election of President and it may help in restoring confidence among local investors.
Analysts were of the view that offloading by foreign funds has been at the heart of recent fall in Pakistan equities. Though the quantum of selling is not huge, but due to low volumes and uncertain political and economic conditions, it made a huge negative impact on share prices.
So far in calendar year 2008, foreigners have sold shares worth US$2.7bn and bought shares of US $2.3bn. Thus a net selling of US$396m according to NCCPL data. However, majority of this selling occurred in last 3 months where they sold out shares valuing US $233m on net basis.
Analysts said that swift resolution of the outstanding political issues is likely to help reverse the prevailing bearish sentiments.
Analysts said that selling of OGDCL stake in Qadirpur gas field and expected announcement on coming days from Saudi Arabia regarding the US$5-6 billion oil facility against deferred payments, among the good signs that will support the economy of the country and markets as well.
Zeal Pak topped the volume list with 12.8mn shares, its shares declined by Rs 98 and closed at Rs 1.16.
Oil and Gas Development Authority (OGDCL) losing Rs 5.15 closed at Rs 97.93 with 9 m shares.
NIB declined by Rs 5 closed at Rs 8.45 with 7million shares, while Arif Habib Securities plunged by Rs 63 winded up at Rs 12.05 with 5.9m shares.