Small investors riot outside KSE as downturn continues

By Mushfiq Ahmad

KARACHI: Hundreds of small investors smashed windowpanes of the trading hall and some offices located in the stock exchange building during a violent protest they held against the mind-boggling decline in the market for past six sessions.

The group of small investors took out the courtyard of the Karachi Stock Exchange building as the benchmark index continued to fall amid offloading of leveraged positions for settling futures contracts, trades said.

The KSE 100-share index declined 380.51 points, or 4.38 percent, to close at 8,314.10 points from 8,694.61 points level of the previous session. “The market is facing a severe settlement crisis for its March futures contracts, and unless this issue is settled, the bear run is expected to continue,” said Atif Raza, a dealer at Invest Capital and Securities.

Analysts said futures spreads rose to unrealistic levels of 60-80 percent for March contracts after aggressive buying over the last few weeks. That left investors stuck with long positions in March contracts after the recent falls.

As in other recent sessions, investors unloaded shares on Thursday in an attempt to settle high-cost futures contracts, dealers said.

Under rules designed to prevent the market going into freefall, the management suspended trading in a number of key blue chip shares when they dropped by five percent or more.

“This gives small investors no opportunity to sell out their holdings because trading is locked by the management to avoid crash,” said Humaira Zaheer, head of research at Capital One Equities.

Trading in other shares that have not been suspended was continuing, although the management had locked the main trading hall, officials said.

Dealers said the management of the Karachi Stock Exchange Thursday extended the settlement and closure date for March contracts by a week to March 30 and April 7, respectively in order to give more time to investors to square their positions.

The drop follows falls of more than four percent on Monday and Tuesday and sharp losses late last week. Wednesday was a holiday. The 100-share index has lost more than 17.50 percent in the last six sessions.

The falls have ended a three-month bull-run that drove the market up by nearly 70 percent this year and pushed the KSE index above the 10,000 points level for the first time last week.

The protesters shouted slogans against big brokers and the market’s management for failing to protect their interests.

The situation was soon brought under control when paramilitary forces reached the spot and arrested five protesters.

The benchmark index fell over 19 percent since March 16, after hitting an all-time high of 10,303.13 points a day earlier.

Traders said a lack of support from local institutions raised concerns that share prices may decline further. Analysts said the market is expected to remain under pressure until investors are able to square their leveraged positions.

Analysts said sharp gains in recent months had been largely speculative and unjustified by fundamentals.

Once the downturn gathered pace, the need for many investors to sell shares to meet obligations on the futures market accelerated the decline, they added.

The slide had started last week after Securities and Exchange Commission of Pakistan, the regulator, initiated a probe into the unprecedented upsurge at the country’s bourses and to check if the rises were artificial and there was insider trading.

Big brokers and even institutional investors were believed to be behind the buying frenzy, which gripped the stocks for past several months.

SECP had also contacted the high ups of State Bank of Pakistan, complaining that banks had been playing beyond their prescribed exposure in stock trading.

“I had burnt all my boats and put all my life savings into the stocks,” said Shafiq Akhlaq, a small investor. “Now, I have lost every penny,” he said.

Our Lahore corresspondent adds: A small group of about 10 to 15 investors assembled in front of the Lahore Stock Exchange building to protest against the present downward trend in the market. According to the eyewitnesses, they chanted slogans against ongoing correction in the market and tried to set tyres on fire by blocking the road in front of the LSE building. However, they fled away soon the local Police arrived there.

The eyewitnesses said the protest was of very minor nature comparing to what happened in Karachi. The investors were more furious about seven months earlier when the government had imposed Capital Value Tax on stock exchanges in the budget 2004-05, they added.

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