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Erratic movement and steep declines in share values forced a number of investors to reduce their positions both in the futures market and CFS resulting in declining financing rates.
The local CFS market saw out a week characterised by a declining level of CFS financing both at KSE and LSE. This could be attributed to declining equity prices and the compulsion faced by several leveraged investors to offload their positions. CFS investment at KSE stood at Rs 20.6 billion on Friday (June 2), thus showing a decline of Rs 3.5 billion versus Rs 24.1 billion financing seen on the previous Friday (May 26).
As far as the weighted average CFS rate at KSE was concerned, it stood at 13.2 percent on Friday. This represented a decline of 200 basis points versus the rate of 15.2 percent seen on previous Friday.
The CFS situation at LSE was also characterised by decline in weighted average financing rate from 14.8 percent to 14.0 percent on weekend to weekend basis. CFS investment at LSE fell to Rs 1.6 billion from Rs 2.3 billion on weekend to weekend basis.
The stock futures market also remained a bit dull throughout the week with overall decline in the KSE-100. Open interest in stocks futures at KSE fell to Rs 9.7 billion on Friday (June 2). When compared with the outstanding position in the June contracts on previous Friday (May 26) of Rs 10.5 billion, it showed weekend to weekend decline of Rs 0.8 billion.
The weighted average stock futures spread at KSE also registered a sizeable decline on weekly basis. From a level of 11.9 percent seen on previous Friday in the June contracts, the weighted average spread fell to a meagre 4.9 percent on Friday.
On last Friday, in a meeting with SECP Chairman, members of KSE expressed their intent to bring the proposed ''CFS Mk II'' on stream, said Khalid Iqbal Siddiqui, head of research at Investcapital Securities. However, a few minor reservations still remained, not only on the part of the members, but also on the part of the bankers. Barring these few ''minor'' reservations, the stock market investors were relishing the possibility of removal of the cap on CFS financing, and introduction of market-based CFS rates rather than having them capped at 18 percent.
"We believe that the worst of the downturn in the KSE-100 is behind us, for now, barring any unforeseen negatives in the FY07 Budget, investors should be encouraged to start rebuilding their portfolios, as this time quite a few heavyweight stocks have yet again come in the firing line and are trading below their fair values", he said.

Copyright Business Recorder, 2006

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