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Will the boom at the bourse continue to escalate?

Financial market sources and stock market analysts say "yes" though it may be punctuated by some corrections. But, the ways it really moves from this point of time, is yet to be seen. The Karachi Stock Exchange Index-100, soared to a historic record of 5633.13 points, as the week opened on Monday, December 6 and still higher to 5698.64 December 8, shooting up to career best 5,738.49 December 9, after Aziz’s boom-triggering address to KSE on December 3. The previous record high was 5620.66 seen on April 19, 2004. This time around, KSE-100 shot beyond the hoped for 5,600 and then crossed even 5,700 barrier, the same week. It sent a word of cheer across the financial market. The market capitalisation (MC) also rose to Rs.1,594.630 billion (b)—-or $ 26.577 billion (b)-- from December 3 level of Rs. 1551.736 billion (b).

But, who led the pack? These were the traditional, strong and high profile scrips including Pakistan Telecom, Oil & Gas Development Company, Pakistan Petroleum, Pakistan State Oil, telecom, cement, fertilizers, and banks. I will say to that: there is nothing new in this line up.

These are mostly the companies lined up for sale by the government or whose shares have already been sold.

Update KSE: KSE-100 was 5567.79 on Nov. 30, 5560.50 on Dec. 1, and 5552.50 on Dec. 2, and 5575.96 on Dec.3, 5633.13 Dec. 6m 5675.79 Dec. 7, 5698.64 Dec. 8, and 5,738.49 Dec. 9.

This week’s KSE spiral, besides the Prime Minister’s address to the bourse, was also attributed to President Pervez Musharraf’s meeting with President George Bush in Washington, as well as Prime Minister Tony Blair in London, and President Jacques Chirac in Paris, that gave out the signal of a still greater warmth and closeness in United States-Pakistan and EU-Pakistan relations. But, will that bonhomie be followed by larger economic aid flows, larger export access for Pakistani products to US and EU markets, bigger FDI, and American sale of essential weapons including F-16 fighter-bombers sales that Islamabad needs to raise a new squadron? Looking the recent record of US-Pakistan trade and military sales, unless all business and military deals are clinched, the answer is "maybe." There also is he view hat the present hype of business boom emanating from the hoped for warmer US-Pakistan relations is more than genuine and thought up by the punters at the bourse. Countering these views, some of the bourse "bigs" have already started talking of the KSE index moving up to even 6,000 in "the next few weeks." Domestically, the bourse expects good corporate cash dividend announcements within weeks, higher returns on investment, grant of bonus shares and capital gains, all are adding a push to the Index. Surprise of all, some of the weak textile mills, too, are announcing cash dividends and bonus shares. Sounds too good? But, let’s see how things turn up?

There is, however, also a view that the boom is not confined to Pakistan alone. It's more region-wide. The nearest neighbouring bourse — Mumbai—- for instance, has just closed at 6,300. This argument is being used to counter the view that the present stock market boom is a bubble-- and unsustainable. Corporates have announced better than hoped for profits for fiscal 2004. These high profits, official good growth numbers for the first four months of fiscal 2005, and still better GDP projections for the full fiscal, have brightened the stocks’ outlook.

The outlook has also improved as a result of Aziz’s announcement that institutional investors will be allowed to re-enter the market.

One element of the present bourse scene is that the Carry Over Trade (COT) or ‘badla’ business is up. COT transactions rose to Rs 30.0 billion (b) in week ended December 3. Its financing rate is down to 9.3 per cent. This situation is helping week punters to reap the benefit from leveraged positions of short term gains. But a quick off-loaded, of COT-funded shares can lower the index. The boom has slowly been building up for the last several months. But this week’s escalation was also triggered by none else than Prime Minister Shaukat Aziz himself who continues to lead the country’s economic and business team. I feel the bourse will stay upbeat, so long as Shaukat Aziz is upbeat. The economy is growing. However, part of its wings are being clipped by rising inflation. It should be a worrying thought for the government, if it wishes to stay popular. Aziz himself acknowledges the growing inflationary phenomenon.

What were Aziz’s magic words which were music to the bourse and the big business? Pakistan, this year, will exceed the growth target of 6.6 per cent and inflation will be at a single digit. Five years ago, he said, the economy was in dire straits. Two nights ago in Washington, the IMF accepted our request to exit its Poverty Reduction & Growth Facility (PRGF), making Pakistan the first country to switch over from PRGF to international markets. Pakistan will launch its Islamic Bonds next year –mainly in Middle East, Gulf and Islamic countries — and then venture again into Eurobonds. We will bury the begging bowl for ever." KSE has asked Aziz to arrange a faster listing of state-owned companies on the KSE to expand the market cap of the bourse, to continue a 5.0 per cent diffrential between bourse-listed and non-listed companies in tax payment, a reduction of tax rate on dividends of listed companies to 5.0 per cent, and raising the limit of banks’ portfolio investment in listed shares from the present 20 to 30 per cent.

These steps, KSE Managing Director, Moin M. Fudda said, will further boost the bourse, the shares listed on which have already soared 340 per cent over the last five years that has made it "the best performing stock exchange in the world, " as Fudda put it.

As Finance Aziz, in his budget speech last last June, had projected a 5.0 per cent annual inflation rate. The actual inflation was 4.57 per cent in 2004. But now, in his address to the Overseas Investors Chambers of Commerce & Industry, he hinted inflation to rise around 7.0 per cent. In the first four months -–July-October—of the current fiscal 2005, inflation rose 9.06 per cent, year-on-year. In October the food inflation was around 13.75 per cent, that slightly declined to 12.75 per cent in November. It has to be quickly checked to ensure that real growth stays positive — and high.

Another factor that can boost the market is the prospect of investment of Close-end Mutual Funds (CEMF). Nearly Rs. 12 billion (b) of these funds have been invested in shares, but if Rs. 4.8 billion (b) more are invested, business activity on the bourse will increase, according to financial market analysts.

Registered: Off the bourse, things seem to be looking up, too. The Security & Exchange Commission of Pakistan (SECP), for instance, reports that 194 new companies were registered with it during November this year, up from 128 companies in November, last year. It raised the overall number of companies at work in Pakistan as on November 30 to 44,810.

Of these companies, 2,807 are public, 40,397 private, 178 single-member, 504 associations and limited by guarantee, 578 foreign, and five with unlimited liability.