Sunday, November 4, 2007


Finally the emergency was declared late evening on 3rd Nov 07, troops were deployed in the capital, broadcasting of private news channels was halt, Chief Justice removed, Constitution suspended & Key Allies of Pakistan denounced Musharraf's action but Musharraf justifies his coup (2nd time) by saying "EMERGENCY IMPOSED IN LARGER NATIONAL INTEREST". This all rounds up in support of a heavy market downfall which is likely to continue until political situation calms.

I would like to suggest that to close the Karachi Stock Exchange for a week till the political crises calms down, so to minimize the loss of Individual & Small Investors. The investors should wait until the International community again supports Musharraf's regime and continuous there trade & investment in Pakistan.

On the other hand U.S. fears hit world markets & markets in Asia and Europe slump Friday, tracking losses on Wall Street overnight as investors worry about a possible end to U.S. interest rate cuts and a slowing American economy. Oil prices reached a new record high of $96.24 a barrel in electronic trading earlier Thursday. But light, sweet crude for December settled 42 cents lower to $93.07 a barrel in afternoon trade on the New York Mercantile Exchange.

Citi shares tumbled after analysts downgraded the company's stock and added that Citigroup may have to cut its dividend in order to raise $30 billion in capital. News of the downgrade hit Citi stock and sparked fears that other major financial players were harder hit by this summer's subprime crisis than originally anticipated. Some investors worry that because the value of many of these mortgage-backed securities has not been determined, firms like Citi may have to take additional losses.


Value Change %
DOW JONES INDUS. AVG 13,595.10 27.23 0.20%
S&P 500 INDEX 1,509.65 1.21 0.08%
NASDAQ COMPOSITE INDEX 2,810.38 15.55 0.56%
FTSE 100 INDEX 6,530.60 55.50 -0.84%
CAC 40 INDEX 5,720.42 10.50 -0.18%
DAX INDEX 7,849.49 31.36 -0.40%
NIKKEI 225 16,517.48 352.92 -2.09%
HANG SENG INDEX 30,468.34 1,024.54 -3.25%
BSE SENSEX 30 INDEX 19,976.23 251.88 1.28%
GOLD 100 OZ FUT (USD/t oz.) 808.500 14.800 1.86%
SILVER FUTURE (USD/t oz.) 14.599 0.274 1.91%
U.S. DOLLAR vs EURO 1.4498 0.0092 0.64%
NYMEX CRUDE FUTURE 95.93 2.44 2.61%

Thursday, November 1, 2007

Bearish Momentum Continuous

The market failed to keep upward momentum from previous session of 291.62 points due to political unrest, suicide bombings (2nd in a week) at Sargodha killing eight people & rumors of State of Emergence in the country. Investors were also concerned about a ruling expected from the Supreme Court on whether President Musharraf was eligible to have stood for re-election last month. The Karachi Stock Exchange closed at 13,932.41 down 387.01 (-2.70%) on 1st Nov 2007.

The KSE-100 index that made its life high at 14,908.91 points on Oct 22nd has come down 6.549 percent since then as bears finally came out of hibernation and took charge from bulls. Investors should wait but not waste the upcoming buying opportunity mostly in oil & petroleum sector.

Recommendation: Precautious buying.


International markets are up surging on record highs & Nymex crude oil touched $96/barrel during intraday trading & closed at $95.49 up $0.96 cents on 31 Oct 07. The up surge was mainly due to failing U.S crude oil inventories with indication of crude oil crossing $100/ barrel pretty soon. The Federal Reserve's move to cut interest rates by a quarter points to 4.5 % also supported prices.

Bombay Sensex also couldn’t sustain intraday high of almost 20,200 points and index failed to register 20000 and closed at 19,724.35 below 113.64 points.

Monday, August 27, 2007

Weak Sentiments at KSE

Despite the valuations, there seems to be a weak sentiment at KSE mainly due to political unrest. The KSE 100 Index closed at 12,053.37 up by 51.90 points on Friday 24th Aug 07. The CFS rate also declined significantly to 10.9% and CFS investment also fell by 14 per cent to Rs45.86bn as compared to Rs53.64 billion the previous week.

The demutualization draft as well as sell of 10% stack of Karachi Stock Exchange to foreign stock exchange and to make them become an active partner and play an active role in management is under review. The KSE board, in its meeting held on Friday 24th Aug 07 under Chairman Shaukat Tarin, recommended the name of Adnan Afridi to the Securities and Exchange Commission of Pakistan (SECP) for its approval.

The market seems to be very volatile in the coming week and I would recommend to start investing in valuation stock and build positions little by little and wait for market rebound (mainly after elections).

Sell on Strength: PSO, PICIC,


The collapse in securities backed by subprime mortgages has caused losses at lenders around the world, helping send Asian banking stocks lower in the past month. Industrial & Commercial Bank of China Ltd., the world's largest bank by market value, said yesterday it had $1.2 billion of subprime-related securities.

Defaults on home loans to people with poor credit have prompted a sell-off of debt-backed securities that spread to wider credit markets and wiped more than $5.5 trillion off the value of equities worldwide.

Losses related to subprime loans damped enthusiasm for Bank of China even after it reported a 51 percent increase in first- half profit. The shares have fallen 10 percent in Hong Kong this year, the fourth-worst performance among companies on the benchmark Hang Seng index.

World Indices closing on Friday 24th Aug 07

Index Closing Chg%
DJIA 13,378.87 1.08
Nasdaq 2,576.69 1.38
S&P 1,479.37 1.38
FTSE 6,220.10 0.37
DAX 7,507.27 0.06
CAC-40 5,569.38 0.83
Nikkei 16,248.97 0.40
H.Seng 22,921.89 0.20
Sensex 14,424.87 1.84

Thursday, August 9, 2007

Karachi Stock Exchange (KSE) Chaotic

On the news of "Emergency" being declared in Pakistan due to internal & external threats, KSE plunged more then 600 points (the highest downward fall) but market managed to take advantage of discounted prices when President Pervez Musharraf rejected calls to declare emergency.
  • KSE 100 Index stood at 13181.94 down by -382.48 points.
  • KSE 30 Index stood at 15848.71 down by -432.60 points.
  • Market Capitalization fall by Rs. 98.275 billion.
  • BSE Sensex closed at 15100.15 down by -207.83 points
  • FTSE 100 Index stood at 6271.20 down by -122.70 points
  • DJIA stood at 13270.68 down by -387.18 points
  • NASDAQ stood at 2556.49 down by -56.49 points
  • S & P 500 stood at 1453.09 down by -44.40
  • NIKKEI stood at 17170.60 up by +141.32
The forth coming week seems to favor Bears at Karachi Stock Exchange with the cloud of uncertainty in the political environment in Pakistan. I would like to advice that don't make abrupt decisions in panic due to market volatility.

If you have already taken position,
  1. you should wait or try to average your positions.
  2. you should sell out positions as prices go up and regain your positions as market further corrects itself.
For those who have squared there position either at loss or at gain, should wait for further correction in the market and should pickup positions where values seem attractive and correction sentiment seems over.

Recommendations: for coming week

Sell on Strength: PSO, PPL, POL, APL, , OGDC, MCB, NBP, ABL
Buy on Weakness: LUCK, PTC, UBL, IGIIL, NRL

US Stocks also tumbled on Thursday, with the Dow and S&P down nearly 3 percent, after a French bank froze three funds that invested in U.S. subprime mortgages, prompting central banks to take steps to calm investors. Evidence the U.S. mortgage market crisis was having a global impact and spreading to other markets hammered financial stocks.

Major central banks stepped in to calm the financial markets as banks scrambled for cash, with the European Central Bank injecting a record amount of liquidity to prevent the financial system from seizing up. The ECB pumped 94.8 billion euros ($130 billion) of emergency liquidity into Europe's money markets, while the Bank of Canada said it injected C$1.455 billion ($1.37 billion) into the markets to help with liquidity shortfalls. The U.S. Treasury said it was monitoring financial markets and remains vigilant.

Friday, August 3, 2007

Introduction to Finance

Defining Finance: Finance is the study of how people allocate scarce resources over time. The two features of Financial Decision are that the costs & benefits are 1) Spread over time & 2) Are not know with certainty in advance.

Benefits of Studying Finance:
  • To manage your personal resources.
  • To deal with the world of business.
  • To pursue interesting & rewarding career opportunities.
  • To make informed public choices as a citizen (how financial system works)
  • To expand your mind (how the real world works)
Financial Decisions for Households: Most households are families & face four basic type of financial decisions
  • Consumption & Saving decisions
  • Investing decisions
  • Financing decisions
  • Risk-Management decisions (how to reduce financial uncertainties)
Financial Decisions for Firms: Firms are entities whose primary function is to produce goods & services
  • Capital Budgeting (deciding on acquiring long lived assets to operate business function)
  • Capital Structure (feasible financing plan for the firm)
  • Working Capital management (managing firms operating cash flows)
Financial Markets:

  1. Specific Contracts
  1. Securities Market
  • Non Transferable
  • Non Negotiable

  • Capital Market
    (a: Stock Market b: Bond Market)
  • Money Market
  • Derivatives
A different classification is by the maturity of the claims being traded. The market for short term debt (less than one year) is called Money Market and the one for long-term debt & equity securities is called Capital Market

Money Market: Money market instruments are mostly interest earning securities issued by Government (T-bills, Repo) & large Corporations

Capital Market: In capital markets the total capital (bond & equity) are sold & purchased
Types: a) Stock Market ...b) Bond Market

Derivatives: Derivatives are financial instruments that drive their value from the prices of one or more other assets such as quity securities, foreign currencies or commodities. Their function is to serve as tools for managing exposures to the risk associated with the underlying assets.
Types: a) Forward Contracts ...b) Futures ...c) Options


Rate of Return in Other Currency:
Data: Time Period = 1 year, Japanese Govt. Bond Rate = 3%, U.K Govt. Bond Rate = 9%, Exchange Rate is currently 150 yen to the pound, Suppose exchange rate after one year is 140 & you invest £ 100 in U.K Govt. Bonds.

Yen Rate of Return: Interest Earned x Future price of ¥ - Investment

£ 109 x ¥140 - ¥15000

= .017333 or 1.733%

Thus, your realized yen rate of return will be 1.733%, which is less than the 3% risk free yen interest rate you could have earned on one-year Japanese Bonds.

Rate of Return in Stock Equity:
Data: Time Period = 1 year, Price of Share $ 100/-, One day later $ 101/-.

Rate of Return: Ending price - Beginning price
...........................Beginning price

$ 101 - $ 100
$ 100

= .01 or 1.0%

Thus, your rate of return for the day is 1% & capital gain is of $ 1/-

Suppose you hold the stock for a year & at the end stock pays a dividend of $ 5/- and the price is $ 105/-

Rate of Return: Ending price - Beginning price + Cash Dividend
...........................Beginning price

$ 105 - $ 100 + $ 5
$ 105
= .10 or 10.0%

Inflation & Real Interest Rate:
To correct the effects of inflation, economists distinguish between
  • Nominal Price: Prices in terms of some currency
  • Real Prices: Prices in terms of purchasing power over goods & services
Data: Rate of Interest = 8%, Inflation = 5%

Real Rate: Nominal Interest Rate - Rate of Inflation
.................1 + Rate of Inflation

0.08 - 0.05
= 0.02857 or 2.857%

Stock Market Index:
Dow Jones Industrial Index (DJI) is the most cited stock index which is the index of prices of 30 stocks of major U.S Industrial Corporations but it has two major problems.
  1. It is not diversified enough to accurately reflect the wide spectrum in the U.S.
  2. It corresponds to a portfolio strategy that is not suitable as a performance benchmark
Therefore, most professional investors prefer to use other indexes like the Standard & Poor's 500 (S & P 500)


Company Base Year Now No. of Shares Market Value
Base Year Now


$ 100

$ 50

$ 50

$ 110

200 million

100 million

$ 20 billion

$ 5 billion

$ 10 billion

$ 11 billion

Total $ 25 billion $21 billion
Weight 20 / 25 = 0.8

5 / 25 = 0.2

Decline of
= 0.16 or 16%

DJI - Type Index = Avg. of Current Stock Price x 100
............................Avg. of Base year Stock Prices

........................($ 50 + $ 100) / 2 x 100
................($ 100 + $ 50) / 2

= 106.67 or increase of 6.67%

S & P - Type Index = (Weight of IBM x Current Price of IBM
.................................................................Base year Stock Prices
.......+.....Weight of IBM x Current Price of DEC
..................................................Avg. of Base year Stock Prices) x100
(0.8 x 0.5 + 0.2 x 2.2) x 100
= 0.84 or 84%, a decrease of 16%

Thus, the index shows a 16% decline, which accurately reflects the total market value of the all Stocks

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