Market manages to stay above 10,000 level

LAHORE - The equity market managed to stay above the 10,000 level as index closed exactly at the psychological five digit figure on the back of foreign investment, which continued to flow in the country during the outgoing week.
Average daily traded volume for the exchange was down 11% WoW and stood at 162.8mn shares while average daily traded value stood at USD70.5mn down 18% WoW.
Experts said that though stock derivatives market is not active in Pakistan after the 2008 stock crisis, but recently there have been some volumes in the single stock one-month deliverable futures market. As a result of this surge in activity in the March contract, the open interest has crossed a limit of Rs2bn and that too concentrated in few stocks and with few brokers, according to KSE statistics.
The appointment of the Finance Advisor also became a source of comfort for investors and it signals the probable release of the fifth IMF tranche shortly. Further, the current account deficit and forex reserves flow cemented the fact that macroeconomic imbalances are indeed reversing. Moreover, in response to continuous foreign buying, lower quantum of selling was witnessed from local investors this week. Hence, volumes remained subdued at 163mn shares (down 11%WoW).
The 8MFY10 (July-Feb) current account deficit fell to US$2.6bn (down 211%YoY) primarily on account of a lower trade deficit (down US$7.4bn) and 18% rise in remittances. The appointment of Dr Hafeez Sheikh as Finance Advisor is expected to provide further impetus to the economic reforms program, as well as the disbursement of IMFs 5th tranche (US$1.2bn).
Angela Memon, a stock market analyst, stated that domestic investors sold off US$25mn worth of scrips this week, with mutual funds and companies leading the local sellers lot, with US$11.7mn and US$6.3mn in net balances, respectively.
This open position in futures market may put some pressure next week (roll over week) when leverage positions will have to be transferred to the April contract and that too in 4 trading sessions (Mar 23 being a holiday)
Compared to average daily open interest of Rs146mn after the 2008 price floor triggered market fall, the average open interest last week was at Rs2.2bn. And at the end of last week that is on Friday (Mar 19) an open position of Rs2.1bn was outstanding in the March contract. Of this total open interest, 53% is concentrated in 3 stocks that is AICL, PTC and POL.
This open interest is too low compared to average open interest of Rs10bn in 2007 and Rs12bn in 2006. But in those period the average daily volume was Rs25bn (US$410mn) and Rs32bn (US$530bn) respectively. At the same time the average badla was Rs51bn and Rs25bn, respectively. But in those two years the local bourses were flourishing due to ample liquidity to finance the leveraged position. This time, however, severe liquidity crunch coupled with risk aversion may create some issues with the rollover of Rs2.1bn position unless the borrower has some sort of deal with the lender.
Foreign investment continued to pour into domestic equities as net inflow was recorded at USD25.0mn (compared to USD29.5mn last week). Local institutions however remained net sellers with mutual funds recorded net selling position of USD11.7mn for the week.
The government raised PKR8.7bn through auction of Pakistan Investment Bonds (PIBs) on March 17, 2010 out of which PKR6.058bn was raised through the sale of 10-year bonds. The yield on 10-year PIB was increased to 12.75% from 12.54%.
The local currency finally showed some strength against USD during the outgoing week. PKR shed 25paisas WoW to close at PKR84.18/USD in the ready market compared to PKR84.43 last week and PKR85.07 at the beginning of the month.
During the outgoing week, POL announced a hydrocarbon reserve discovery at its 100% owned Meyal/Uchri lease located in district Attock in well named, Bela#1. Initial estimates suggest an impact of PKR0.83 on the companys bottomline. News flow on PPL however indicate failure at the ongoing exploration activity at offshore well, Shark-1; one-time write-off of PKR0.69/share for the company is expected to be taken during the ongoing quarter.
Experts said that two things can save the market next week from falling as result of this leverage position 1) Foreign inflows may continue next week looking at last 3 week net buying of US$83mn, 2) the leverage buyer may have some kind of understanding with the lender to rollover the position for one more month. If any one of this does not materialize than we may see some pressure in the market next week and especially in stocks having larger open interest.