Yet another lackluster day and capital gains tax (Gold UPDATE!)

KSE 100 down by -24.53 (-0.17%) to close at 13993.92KSE 30 down by -57.12 (-0.34%) to close at 16710.43

Volumes did show an increase but again when the index reached high levels we did see selling.

As again the technicals for the time being are showing that 14000 is a resistance level and a physiological level for investors to take a cautious stance.

Today dealers were of the point of view that the market will show a consolidation but after election the index will show a bull run irrespective any party wins the elections 08. The bull run can also breach 15000 level make an all time high and then the market will go down near about budget 08-09. In a way this does make sense as the market does react in these ways and has also acted in this ways in the past just to give pressure and creates a whole suspense for the audience.

The reason why the market can take a u-turn down near the budget is because the issue of capital gains tax. The exemption is said to finish on FY 08-09 (July 01, 08). Looking internationally in 2007 the Chinese market had taken a one day tumble of over 11% just when there was a rumor that the Government of China will impose capital gain tax. When the rumor was clarified the market then pulled itself up.

Earlier in Pakistan when the issue of capital gains tax was raised we saw that the market had taken a panic turn. The same kind of reaction can be accepted and maybe this time again the KSE management will be bold enough to tell the Government of Pakistan to extend the capital gain tax.

But the situation looks different if you compare the past 7 years.

The FBR might just show figures not encouraging when it comes to HOW MUCH TAX has been collected for the FY 07-08 and with the subsidies that the Government of Pakistan has given in this year alone has risen the twin deficit to alarming numbers.

With that the Federal Finance Minister, Dr. Salman Shah has said that the next government form will have to pass the effect to the people of Pakistan and would also have to ensure that Pakistan has ZERO SUBSIDIES for the FY 08-09!

This can be a more of a direct statement that in the months to come we should prepare that capital gain tax will not be exempted and the Insurance and Banking companies will now have to look for other ways of getting a higher income provided that there is always the issue of discount rate 10.50%!

These are some of the early insights that we have at this time and one can just judge that what kind of a challenging time will be coming for the companies, investors locally and internationally.

On the other hand we can also expect the Privatization Commission to wake up from the dead and not act like a zombie. Maybe we should expect that later on Government of Pakistan should notice that issuing more bonds and GDR’s might be way out just to manage the GDP by 7% that is MAYBE!

Today’s major contributors for the market:

Oil and Gas Exploration companies
Food and personal care products
Investment banks, companies and securities
Oil and gas marketing companies

Major sector decline:

Power Generation and distribution
Commercial banks
Insurance
Cements
Automobile parts and accessories
Refinery
Fertilizer


On the commodities front:

WTI Cushing Oil is buying at $ 87.13 and selling at $ 87.18
Gold is trading at 909.20 on the international front.

Gold is again taking the lead. Gold Relative strength index is 58.15 which is indicating that the RSI is now slowly moving into the neutral zone towards the overbought zone. But 70 being the overbought zone is still a long way for Gold to come. This might indicate that Gold will be on the bull run with this rise coming in today.

Along with that Oil declining will also push the Gold prices up as fund managers want to invest in a solid commodity for a safe heaven.

It won’t be far for Gold locally to come at a level of 25000 per tolla by the mid of this current year. Always invest heavily in Gold as it is a safe investment being a Muslim do also pay Zakat for your gold holding as well.

Recommendations:
No recommendations for today.
Invest in long term dividend paying companies if want to invest in the market for the time being.

results and elections 2008

Today the Karachi Stock Exchange closed in the positve zone.

KSE 100 up by 23.45 (+0.17%) to close at 14018.45
KSE 30 up by 7.62 (+0.05%) to close at 16767.55

Volume was 67.22 mn shares, the lowest since April 02, 07

Experts were of the view that the KSE 100 can witness range bound activity with low trading volumes untill elections Feb 18, 08.

This was expected as experts, dealers and market punters were of the view that the market can get into a consolidation phase.

As for the results market participants are optimistic and holding on to their expectations high as these reasons will show growth in terms of dividend yield and as well as capital gain.

According to newspapers on the economic scenario, President Musharraf has rejected the idea of cutting the Public Sector Development Program (PSDP) for the budget 08-09.

On the other hand, Federal Minister, Dr Salman Shah has also said that Pakistan will launch Global Depository Receipts (GDR) for National Bank of Pakistan, Habib Bank Ltd and Kapco and plus Euro bonds to narrow down the current deficit gap.

Along with that government officials have also stated on unofficial news that Privatization Commission will now be playing a more active role in the future and pick up its agenda that it left in the last quarter of current year 07. It will be a matter of time to see how the Privatization Commission comes up with new tricks and measures to sell strategic public holdings to the private sector.

The tightened monetary policy for the next 6 months has been put into foreplay to curtail core-inflation. Dr. Shamshad Akhtar, governor SBP has said that real interest rates are the lowest in the region as well. Increasing the discount rate and increasing the cash reserve requirement by 100 basis points is just the step that SBP had to take to control inflation as a high inflation can hurt the economy more compared to with a high discount rate.

Questions are being raised that what are the other incentives that government is offering to the foreigners to do business in Pakistan. In an attempt President Musharraf also did his Europe tour which hopefully should be fruitful in the months to come if everything is in accordance.

Talking in a more broader prospective the social economic indicators are not pleasant as well. Fears have grasped the Pakistanis especially in the mega cities (Karachi, Islamabad and Lahore) that suicide bombs are a major treat to the society and as well to the economic activities.

High net worth individuals, army personnel, white collar job and retail people are all in the state of mind that Pakistan is a perfect breading ground to cultivate suicide bombers. This is the image that we have internally let alone external. I personally believe that we need to get rid of this image. It’s not me but many individuals are stuck in this lope on how to find ways to educate and make everyone believe that working together we can make a difference.

Anyway coming back to the stock exchange, today we saw a different set of volume leaders.

Major contribution to KSE 100 index was seen in the following sectors:
Investment Banks, companies and securities
Commercial Banks
Tobacco
Pharmaceuticals

Major decline contributed to KSE 100 was seen in the following sectors:
Power generation and distribution
Oil and Gas Marketing Companies
Oil and Gas Exploration Companies
Insurance
Cements
Fertilizers
Refinery
Telecommunications

Looking at the Oil sector decline was seen and it can be mainly related to the international oil prices that are trading below the $90 / barrel.

There is no reason yet why Banks are taking the lead for the time being.

Some of the top news was that old news is gold when dealers were of the point of view that last year in November 07 Oman Telecommunications Co had offer to acquire 60% of Worldcall at Rs 25 per share. We did see a rally in WTL today.

Recommendations:
Buy on high dividend paying stocks in particular, OGDC, FFC, FFBL and KAPCO for a one year tenure.
Investors should avoid heavy leveraging as technically the 14000 level is a major resistance level. If 14100 and 14200 levels are breached then the index 100 will be technically charged to breach 14500.

Recovery but still no interest

After the U.S cut down its interest rate by 0.75% to 3.75% the lowest in 25 years gave some recovery on the European markets. Today in the Asian markets the bulls were ruling and all the markets gained interest.
With that the commodities also picked up its momentum and WTI cushing Oil is currently trading at $89/bbl along with that is Gold which has now breached $890/oz.
The move from the feds was a surprise was this was not in the cards. This can cause some serious economic repercussions. Looking at 2007 the interest rate scenario in U.S was on a hike as they wanted to slow down the economic processes and hence growth rate. Inflation was also getting to alarming levels and the feds took notice and started interest rates. The dollar was gaining pressure and in an attempt to ease out the currency outlook the Feds said that 5% level is efficient.
Then began the turmoil of the sub prime mortgages that shocked the U.S and caused the major meltdown in their financial markets which then also started off in the whole globe.
Now with further cutting the interest rates it will be a matter of time that we will see what will happen to the U.S economy. Experts say that inflation can breach to tremendous levels but for now U.S might just buy some time with the cutting of the interest rates.

In the capital markets in Pakistan, the KSE100 closed at 13787.07 with an increase of 27.57 (0.20%). The KSE30 closed at 16407.43 with an marginal increase of only 2.60 (0.02%).

The Major sectors that gave support to the market's performance were:
Investments banks/cos/securities
Food and personal care products
Oil and gas exploration companies
Insurance
Fertilizer
Automobile parts and accessories

Marginal support were seen from the following sectors:
Technology and communication
Oil and gas marketing companies
textile composite
chemicals

The following sectors witnessed selling:
Power generation and distribution
Commercial Banks
Automobile Assembler
Cements
Refinery
Transport

Another positive news that was flashing in Pakistan was that the cabinet,met with Prime Minister Muhammedmian Soomro in the chair on Tuesday, has approved the proposal 'Stock Exchanges (Corporatisation, Demutualisation and integration) Ordinance'. The ordinance' will ensure that all stock exchanges would be corporatised and effectively be demutualised within 110 days of the promulgation of the law. The shareholders structure is 40% existing members, 20% general public and 40% foreign strategic partner or local financial firms.

Choas in International Markets

Today the KSE100 closed in the negative zone as the regional markets were also down in the negative zone.

The Indian markets more then 12% intraday also caused panic selling at the KSE100.

Selling was witnessed in almost all the sectors.
The most selling was witnessed in oil and gas exploration sector followed by commercial banks and technology and communication sectors.

KSE 100 closed at 13759.50 with a negative change of 90.53 points (-0.65%)
KSE 30 closed at 16404.83 with a negative change of 99.94 points (-0.61%)

"We will be looking at the performance of the indian and asian markets which will decide the direction of the Capital Markets in Pakistan," said Dealers at KSE.

KARACHI, Jan 22 (Reuters) - Pakistani shares shed nearly two percent in early trade on Tuesday following a decline in global markets on fears of a U.S. recession, dealers said.

"Market is weak due to the international pressure and fear that foreign investors may sell further," said Sajjad Mankani, head of sales at BMA Capital Management Ltd.

Stocks tumbled across Asia and U.S. stock index futures sank as panic gripped markets that a U.S. recession could derail economic growth, sending investors fleeing to safe haven government bonds.

According to the central bank data, there was a net foreign outflow of $72.887 million for the first 18 days of January.

Looking at the situation in the U.S, Major countries are now fearing that U.S might go into an economic recession phase.

European and Asian countries are fearing that the weakening of dollar against Major currencies will have an impact on their exports to U.S. As Reuters has also indicated that now investors are investing in Government Bonds to safe guard their investments. A common tool called Hedging.

The drop in International Oil prices just manging above $ 88 / bbl has also indicated that the energy stock piles in the U.S has also dropped down forcing investors to sell in energy stocks and invest in Gold which gave support on $ 860.50/oz for the time being. Earlier on we did witnessed selling from Gold as well, as it reached to high levels breaching $900/oz levels earlier in Jan 08.

Headlines from local newspapers

President Musharaf has turned down the proposal for a change in the policy of subsidizing petroleum products and directed the government not to revise the oil prices before the general election scheduled for February 18 (BR)

External debt of the country is likely to reach US$46.6bn by the end of FY12 from US$39.6bn by the end of FY08(DT)

Cement exports to Russia are expected to resume in the wake of cut in the local consumption due to a likely decrease of 15% in the Public Sector Development Program (TN)

Stocks plunged across the world yesterday, with markets in Europe, Asia and Latin America tumbling by up to 7% as investors feared a global recession (Dawn)

The Supreme Court has called a report from the State Bank of Pakistan about PRs54.0bn bank loans reportedly written off by the outgoing government in the last five years (BR)

The value of Pakistani cement exports to India has fallen from US$74 to US$70 per ton during the last few weeks due to competition amongst exporters (DT)

Analysis in ORANGE