Thursday, February 7, 2008

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
Automobile parts and accessories

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.

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

Wednesday, February 6, 2008

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

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

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.

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.