'Floor mechanism' drags stock market down

LAHORE - The stock market, following the ‘freeze on market floor’, continued to witness poor performance and the KSE-100 index remained relatively flat, fluctuating near the dividing line.
Dealers said that this was mainly the result of the floor mechanism that was put in place last week and the subsequent lack of investor interest. Post elections a relief rally may ensue. However such a rally, in the absence of any announcements related to the SOF or larger financial GCC package, would be short-lived.
The persistent political uncertainty in the country, the weak macroeconomic fundamentals such as constant rupee depreciation against world’s major currencies, and attitude of the investors in view of the awaiting presidential election contributed a great deal towards restraining the market under tight pressure.
After the regulators decided to implement a price floor on shares trading on Aug 27, 2008, very little activity was witnessed at KSE this week.
Although the market gained 134 points or 1.5 per cent, average daily volume in the week made a 9 week low to stand at 22.8 million shares, down 67 per cent WoW. Volume in the futures market averaged 1.8 million shares depicting a WoW fall of 90 per cent.
CFS investment stood at Rs18.1bn, up by 3.2 per cent WoW. Similarly, CFS rate stood 17.7 per cent vs 16.6 per cent, previously.
A meeting of 200 KSE members has been called on Sep. 8, 2008 to discuss prevailing market condition. Followed by that KSE board will meet to review the price floor mechanism on Sept 9, 2008. KSE imposed this floor in order to provide a breather to the investors; however this measure was not liked by certain sections in the local as well as foreign community. Economic numbers further deteriorate Worsening balance of payment situation continued with its pressure on the forex reserves which fell to US$9.13bn, more than 5 year low. That is why Pak Rupee weakened last week to touch intraday low of Rs77.4/US$ amid speculation that Pakistan needs IMF funding to avoid default on its upcoming euro bond payment slated for Feb 2009. Given the current balance of payment situation, urgent need for foreign inflows is a must as import cover has fallen to 7 year low of 11 weeks. However, progress on the much awaited Saudi oil facility and US$1bn ADB loan has been relatively slow with no official announcement to date. Moreover, there have been news reports in recent days of a potential downgrade by international rating agencies such as Moody’s and S&P.