KARACHI, Jan 23: A thick blanket of gloom descended on the Karachi Stock market on Friday as investors watched the KSE-100 index crash through the 5,000 points barrier, on heavy selling by foreign investors with scarce buyers.

Having sunk 16 per cent in the first 22 days of the current year, which represented a 980-point drop in the index, brokers blamed foreign investors for acting like a panicked herd.

Foreign funds were noted to have sold $98 million worth of stocks this month and an equity strategist calculated that the market still faced the grim prospect of an avalanche of sell orders worth $300 million.

Analysts said that foreigners had reason to make a dash for the door due to several reasons including the exclusion of Pakistan from the MSCI index in December and the fixation of ‘floor’ which effectively blocked their exit for 110 days. And the Pakistani market could not be insulated from the global equity meltdown. “International hedge funds that are in liquidation have to sell stocks at any price to improve their liquidity”, says an analyst.

Haji Ghani Haji Usman, a director on the KSE Board, said that the foreign selling pressure had been exacerbated by the distress selling by banks of shares pledged against margin financing.

Increasing number of brokers were talking of ‘liquidity crunch’ and starting again to assemble before the government, hat in hand, asking for funds. One such broker said that the NIT-managed State Enterprise Fund (SEF) of Rs20 billion was much too small and it also was taking time for cherry picking in eight eligible stocks.

As much as $50 billion or Rs4 trillion had been wiped off the market capitalisation of the Pakistani equity market, since the meltdown began nine months ago. Although everyone is aware that stock markets anywhere know no bottom, there are many incorrigible optimists. Analysts hold the consensus view that “fundamentals” of the Pakistani equity market cannot be more attractive.

Some of the stocks produced healthy yield of 20 per cent; the market price-to-earning (p/e) ratio had dipped to around five times, which analysts argued was at 40-50 per cent discount to the p/e prevailing in the regional markets and financial figures of some of the big corporate entities already unveiled this reporting season, were generally better-than-expected.

Tariq Iqbal Khan, chairman NIT and the manager of the State Enterprise Fund (SEF) would not disclose the amount from the Rs20 billion of SEF money already invested in the market. But he held the sunny side up, saying that data analysis showed a slower rate of decline in major stocks, barring a few on Friday, compared to a day earlier. He also brushed aside the view that save for NIT, buyers were absent from the market.

He argued: “The aggregate value of shares traded in the market on Friday comes to around Rs1.55 billion, which translates into $20 million … (And) the foreign selling was worth the value of $3.4 million, all of which means that stocks of around $16.6m, cannot have been bought and sold, but by local investors.”

If that were not so, he asked, could it be right to assume that NIT bought and sold shares worth Rs1.6 billion in a single day? He also revealed that in at least three of the eight stocks that the Fund was eligible to buy, there were no sellers in the market on Friday.