Re: KSE’s frequent orgasms !
Here’s another article suggesting pretty much the same thing.. an impending collapse:
Re: KSE’s frequent orgasms !
Ehsan, what is the retail vs. institutional mix in terms of investors in Pak? Also, do the institutionals have ALM benchmarks with regard to margin plays?
Investors’ dreams fade away
By Aamer Ahmed Khan
BBC News, Karachi
Only die hard investors dare trade at the KSE these days
Three months ago, Pakistan’s most important stock market, Karachi, was that end of the rainbow which has a pot of gold. These days, it looks more like a monument to the devastated aspirations of thousands of Pakistani investors.
Over the last month, the Karachi Stock Exchange (KSE) has lost 3,000 points or one-third of its value in a slide that broke the back of thousands of small and medium investors.
The downswing followed unprecedented gains by the market between February and 16 March when the KSE index peaked at over 10,000 points.
At that time, brokers and financial analysts were confidently predicting that the market would win yet another best performing financial market award from international rating agencies. The KSE was rated the world’s best performing financial market in 2003.
Instead, they are now describing it as the world’s most manipulated market.
“All analytical tools that are traditionally employed by investors seem to have become totally useless,” says Dr Altamash Kamal, one of Karachi’s leading entrepreneurs in IT technology.
Cricket
This was Tuesday 12 April and he was watching a TV commentator predicting that the stocks may rise if Pakistan won the fourth one-day international against India at Ahmedabad.
Dr Kamal: “Our analytical tools have become useless”
“You know, this guy just about says it all. That is what our analysis has been reduced to,” he says.
“But the sad part is that we may actually see the market slide a bit every time the Indians hit a four.”
Dr Kamal entered the market about four months ago, right at the start of its upswing which catapulted it beyond 10,000 points this March. He has not traded now for over two weeks, being among the few wise ones who managed to pull out in time.
The blame game is on, of course.
Big players say the government’s arbitrary decisions regarding badla - a crude form of margin financing which allows investors to trade with five or even 10 times the value of their actual investment - is responsible for the topsy turvy ride that the KSE is going through.
Small investors blame the big players, saying they used their immense wealth to manipulate the market.
And the government accuses small investors of becoming too greedy.
But these may be over-simplifications of what is a pretty complex situation.
Gambling
When former Citibank executive Shaukat Aziz was recruited by President Pervez Musharraf to become the country’s prime minister, Pakistanis were faced with rapid inflation, declining employment and a near bankrupt central bank with less than $1bn in the federal reserves.
Naqi: “There was such a rush”
Industrial investment had fallen to alarmingly low levels and pressure on the government to provide employment was reaching critical mass.
Billed as a financial whiz kid, Mr Aziz set his eyes on the financial markets.
Interest rates on treasury bills were cut drastically and, as they fell below the inflation rate, millions of people found their savings threatened with erosion.
At the same time, the government adopted a policy of privatising large state-owned enterprises with the bulk of the public offering reserved for the small investor.
This looked like a golden opportunity to those who did not have enough to invest in the only other business that was booming at the time - the property market.
Compared to the $190,000 minimum investment required for the property market, individuals could enter the stock market with as little as $430.
Investors came in droves and between 2002 and 2004, the KSE increased its worth 10-fold.
Online trading houses underwent a mushroom growth to accommodate the rush. AKD Securities, one of the first online brokerages in Karachi, stopped taking new clients within a few months of opening in early 2004.
One did not even need a computer and an internet connection to trade on the KSE as most of these brokerages provided net cafe services for their clients.
A guard stands outside the KSE following rioting by angry investors
“There was a time when people used to line up early morning to ensure they had a terminal to trade on,” says Faris Naqi, the head of Live Trade Online.
And by the time the crash hit, thousands were standing in the firing line.
“Most of these people entered the market during an unprecedented boom, so they had no idea what a falling market can do,” says Usman Bashir, a private businessman.
“Few among them were actually investing, most were just gambling.”
What is worrying analysts, though, is that the effects of the massive crash - despite some rioting during the downslide - have not really surfaced as yet.
“That time will come,” says Tarik Hashmi, a broker at Live Trade Online. “I don’t think we have quite seen the end of trouble.”
Re: KSE's frequent orgasms !
^ I don't follow or particpate in KSE. I think it is more of a casino than a stock market.
Re: KSE's frequent orgasms !
perfect..on my last trip to vegas I was up 230%....where do I sign up?