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100-Index up 26pc in CY10

KARACHI: With only one week to go, Pakistan market nearly gained 26 per cent ($24 per cent) in calendar year 2010. Amongst the local investors there were very few winners. That is few investors have minted money due to low volumes and due to the fact that index gain was mainly driven by heavy-weight OGDC.

OGDC, with more than 80 per cent of float is estimated to be owned by foreigners, its share in KSE 100-Index has jumped to 25 per cent now from 19 per cent at start of the year and is distorting the so-called representative KSE 100-Index.
The stock that used to be the top traded stocks has fallen to number 5 in 2010 as local investors don’t have large quantity of this stock to trade.
As per the Mohammed Sohail of Topline Securities, one thing that was missing from Pakistan’s largest exchange in 2010 was “volume”.He said Pakistan’s once actively traded stock market saw trading activity declining to 9-year low in the calendar year 2010 mainly due to absence of investor-friendly derivative product and imposition of capital gain tax at a time when investors are still risk averse after the infamous 2008 crisis.

Interestingly the extent of how dull the trading activity was can be judged from the fact that investors bought and sold shares worth Rs1.06 trillion in last 52 weeks which is equal to 3 weeks trading seen in Feb 2005, he added. The year 2010 saw volumes declining to 9 year low. Average daily volume of 122 million shares was down 29 per cent from 2009 and 47 per cent from 10-year average. In value terms daily business of Rs4.4 billion ($51 million) was lower by 41 per cent from 2009 and 73 per cent from last 10-year average.
Though in 2001 the volume was 96mn shares (Rs3 billion) a day but at that time the market size was also small with average market capitalisation of Rs337 billion ($5.4 billion) compared to average market value of Rs3 trillion ($35 billion) in 2010. The imposition of capital gain tax and the uncertainties on its modalities affected the trading activities of investors who were already missing the investor friendly leverage product. That is why volumes in second half of 2010 fell 40 per cent from first half volumes. In terms of turnover velocity (volume divided by market cap) which is a better and relative measure of market depth, Pakistan’s turnover velocity in 2010 was 37 per cent compared to an average of Asian markets of more than 100 per cent.
Pakistan’s turnover velocity in 2003 was at record 490 per cent compared to Asian average of 80 per cent making it one of the most actively traded markets at that time. Thus the once most liquid market of Asia is suffering from low volumes thereby making impossible to execute large orders.
And that is why we believe that foreign flows of $1.9 billion (gross buy of $1.2 billion and gross sell of $0.7 billion) was lower in relative terms than what was observed in other similar markets.


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