Stock market woes: The initial days of the PSX

Spearhead Analysis – 21.01.2016

By Hassaan Khan
Research Analyst, Spearhead Research

Pakistan Stock ExchangeThe amalgamation of all of the country’s exchanges into the Pakistan Stock Exchange was supposed to be the herald of a new dawn of prosperity and stability for the equity market in Pakistan. Even before a single trading session had finished the director of the KSE Mr Nadeem Naqvi had hailed the exchange as a quantum leap forward for the capital markets of Pakistan. However, since its inception the market has seen a bloodbath with eleven straight trading sessions in the red and as of Monday the 18th of Jan the index was at a nine month low of 30,628.40. The market showed some signs of recovery on Tuesday recovering slightly but the attack on Bacha Khan University coupled with renewed international pessimism surrounding the volatility of oil prices has once again shifted the moods towards despondency leading to a falling market.  Foreign investors are also starting to lose their faith in the market and this month alone foreign investors have withdrawn a further $36 million from the equity market.

The global equity rout, which has emerged since the removal of sanctions on Iran and the subsequent plunge in the price of oil to $28 per barrel, has depressed investor sentiment globally with the mood in Pakistan also following suit.  The international situation has added to the already gloomy situation in the domestic market following the arrest of two directors and the Chief Executive Officer of AKD Securities. Many people in the corporate world suspect that the case pertains to the loss of RS 290 million to the Employees Old age Benefits Institution through an alleged misleading research report on a textile company, and the JSCL right offer issue as disclosed by Dr Asim have been framed by the rival brokers Aqeel Karim Dhedhi and Jahangir Siddiqui against each other to settle scores.

Although the PSX has had a rocky start it is a commendable integration of the stock exchanges.  However, having said that it is just a step in the right direction and there is whole host of hurdles the local equity market must contend with in the coming months. Global headwinds such as the precarious situation surrounding oil cannot be avoided but the internal domestic problems can be and should be resolved as soon as possible removing unscrupulous practices surrounding equity trading. Further initiatives akin to the newly created joint task force of the Federal Investigation Agency (FIA) and the Securities and Exchange Commission of Pakistan (SECP) should be implemented.  The industry like many others in the market is also in need of a total technological revamp from how information is disseminated to how the documentation process is archived to introduce stability in the market. Such measures can make the market more prepared for the future and avoid a hard landing in the testing times to come.