KARACHI: The KSE-100 Index started the week in the red, ending 294 points lower amid lack of positive triggers and profit-booking on Monday.
Trading began on a positive note with the KSE-100 rising to an intra-day high of 43,900, but lack of interest on the part of institutional investors and profit-booking in index-heavy cement and banking sectors dragged stocks into the red. The index dropped 439 points in intra-day trading before retail investors helped arrest the slide.
At close, the benchmark KSE 100-share Index recorded a drop of 293.72 points or 0.67% to finish at 43,515.08 points.
According to Elixir Securities’ analyst Jawwad Abubakr, equities closed negative in lacklustre trading with the benchmark KSE-100 Index seeing an exchange of only 66 million shares.
Weekly review: KSE-100 feels impact as global equity markets tumble
“Market opened sideways and traded in positive territory for a brief period, however, lack of immediate triggers prompted most institutional investors to stay on the sidelines,” remarked Abubakr.
Mainboards stocks in particular witnessed dreary activity and skidded lower on dull volumes with index heavy financials taking the lead in declines. Oil & Gas Development Company (OGDC PA -0.5%) was an exception as it fetched good institutional interest leading to over 3.6 million shares exchanging hands.
Moreover, volumes chart remained dominated by small cap retail plays to the likes of ANL (-5.3%), TRG (PA +2.1%), (KEL -0.5%) and DFML (PA +5%).
Market watch: KSE-100 overcomes early jitters to end 128 points higher
“MSCI was due to announce quarterly-annual review, which, in Elixir’s view, will likely be a non-event for market on Tuesday as we do not expect any additions or deletions from Pakistan constituents due to 50% buffer rule applied on quarterly rebalancing. As such, flows will remain crucial and continue to guide broader market direction,” the analyst added.
Overall, trading volumes fell to 215 million shares compared with Friday’s tally of 225 million.
Shares of 352 companies were traded. At the end of the day, 124 stocks closed higher, 212 declined while 16 remained unchanged. The value of shares traded during the day was Rs7.9 billion.
Azgard Nine was the volume leader with 34.3 million shares, losing Rs1.00 to close at Rs17.88. It was followed by TRG Pakistan with 12.2 million shares, gaining Rs0.82 to close at Rs39.13 and Aisha Steel Mills with 9.7 million shares, losing Rs0.27 to close at Rs21.48.
The City fought off panic on Tuesday as a global share sell-off slashed £37 billion off the value of London’s blue-chip giants.
A turbulent day saw the FTSE 100 sink 143.34 points to 7189.64 although leading shares bounced back from the nine-month low of 7079.41 in early trading.
The biggest Wall Street sell-off in six years spread to Asia overnight, sending Japan’s Nikkei and Hong’s Hang Seng down by 5%. The chaos continued in Europe today, with Germany’s Dax sliding 1.8% and France’s CAC40 off 1.4%.
It has been triggered by worries over US inflation forcing the Federal Reserve into more interest rates rises than the market expects this year, as well as concern that US equities are overvalued.
James Bateman, chief investment officer at funds giant Fidelity International, urged calm. He said: “At this stage, the money is made by keeping your head when others are losing theirs. The tech-fuelled rally in the US had long lost any sense of reality in its valuations, the prospect of inflation remaining low forever could not last, and we have a new and untested Fed chair [Jerome Powell, pictured]. It would be more worrying if markets didn’t react.”
The Dow Jones Industrial Average is still up more than 8% this year and 21% in the past 12 months despite Monday’s rout, which knocked 4.6% off.
But Mark Haefele, global chief investment officer, at UBS Wealth Management said: “We remain confident that the bull market remains intact.”
And Gerard Lane, at Artorius Wealth, said: “In my view there is an opportunity to go and buy the market in a properly diversified portfolio… I don’t think there is cause for panic or distress.”
But others flagged up overpriced US shares compared to European counterparts, with dividend yields of less than 2% in the US compared to 4.3% for the FTSE 100.
CMC Markets’ Michael Hewson said: “This is long overdue and investors have been very complacent. We could see further falls and you would have to be very brave to get back in at these levels. We may have already seen our highs for the year.”
He highlighted record borrowing to buy stocks, which hit $627.4 billion in November as markets roared to new highs.
Commodities were also hit as oil prices slid more than 1% to $66.82 a barrel. Copper fell as much as 2% to $7025 a tonne.
Capita shares have plunged over 40% after the outsourcing firm warned on profits and announced a major shake-up.
New chief executive Jonathan Lewis said the company had become “too complex” and “driven by a short-term focus” and needed to change its approach.
Capita, which issued a series of profit warnings last year, has again cut its profit forecast and revealed plans to raise £700m by issuing new shares.
The move comes after outsourcing rival Carillion collapsed earlier this month.
Capita operates the London congestion charge, runs the government’s Jobseekers Allowance helpline and administers the teachers’ pension scheme. It also collects the TV licence fee on behalf of the BBC.
A Cabinet Office spokeswoman said as a “strategic supplier” Capita was always monitored by the government.
Mr Lewis, who took over two months ago, said a review had found the company worked across too many markets and services, meaning it was difficult to “maintain a competitive advantage” in every business.
Capita had relied too much on acquisitions to drive growth and had also seen weakness in new contracts, he added.
Analysis by Today business presenter Dominic O’Connell
A calamitous fall in the share price – off by over one-third, reducing the company’s stock market value by £800m – looks the worst possible news for Capita.
But if Carillion had made an announcement like this a few years ago – raising money to pay off debt, admitting a slow-down in the market, owning up to both underinvestment and an over-reliance on buying other companies to find growth – then it might still be with us now, rather than languishing in the arms of a liquidator.
Instead, Capita’s new boss, Jonathan Lewis, has decided to take evasive action early.
Chief executives are normally afforded only one chance to hit the reset button in their time at the top, and the smart ones take it early, and hit the button hard.
That is what Mr Lewis has done.
His diagnosis of Capita’s woes could have been taken from one of the many Carillion post-mortems; and by taking harsh financial medicine now he has probably ensured that the company does not suffer Carillion’s fate.
The market seems to think so; while the share price fall is sharp, it is roughly in line with the dilution of existing shareholders implied by the £700m rights issue.
In other words, investors are giving Mr Lewis the benefit of the doubt.
Mr Lewis plans a wide-ranging overhaul including cost cutting and selling unprofitable businesses. The firm will not pay a dividend to shareholders this year.
Annual profits are now expected to be between £270m and £300m – well below analyst expectations of £400m.
In a conference call after the announcement, Mr Lewis said overhauling Capita would take at least two years, but he refused to say how long it would take for the group to recover.
There was “much to be done”, but Wednesday’s announcements were the “first steps on the road to recovery,” he said.
Neil Wilson, senior analyst at ETX, said signs of problems had been building at the firm, including the loss of “a lucrative and profitable contract with the Prudential” in January.
Frances O’Grady, the general secretary of the TUC, said the profit warning from Capita was “really worrying” and urged the government to act.
“We can’t afford another Carillion. The TUC is calling for an urgent risk assessment of all large outsourcing firms. It’s essential the government completes this quickly and is prepared to bring services and contracts in-house if they are at risk.”
What does Capita actually do?
Capita offers customer management services, including the operation of call centres, for public and private sector organisations.
Its customers include O2, M&S, John Lewis, local councils, the Army and the Department of Work and Pensions.
The firm’s biggest contract is its management of O2’s call centres. The 10-year deal which was signed in 2013 is worth £1.2bn.
It is also the UK’s leading provider of software to emergency service control rooms and also runs the Ministry of Justice’s electronic monitoring services for criminal offenders.
- U.S. economic growth slows in Q4 on surging imports
- Yen up on BOJ’s Kuroda comments on economy, inflation
The dollar remained weak against a basket of currencies on Friday, bruised by comments by senior U.S. officials this week backing a weak dollar and after data showed U.S. economic growth unexpectedly slowed in the fourth quarter.
The dollar index, which measures the greenback against a basket of six major currencies, was down 0.38 percent at 89.05 and on track for a weekly fall of 1.7 percent, its worst performance since May.
President Donald Trump’s comments on Thursday that he wanted a “strong dollar,” a day after Treasury Secretary Steven Mnuchin said a weaker greenback would help U.S. trade balances in the short term, failed to put a lid on volatility and keep dollar bears in check.
The euro was up 0.24 percent against the greenback at $1.2425 after hitting a more than three-year high of $1.2536 on Thursday.
“$1.25 in euro-dollar is a critical level and its got a lot of sticker shock associated with it,” said Greg Anderson, global head of FX strategy at BMO Capital Markets.
“There were probably a lot of options barriers and lots of stops up there that people would love to take out. You would expect to see an acceleration in volatility,” he said.
“We did have those comments, and it added to the drama,” Anderson said.
The market was likely to take a breather now but the underlying trend for a gradually weakening dollar remained intact, Anderson said.
Here’s what Trump said that had Wall Street in a frenzy from CNBC.
UBS Wealth Management upgraded its six-month forecasts for the euro on Friday to $1.28, from $1.22.
The dollar found little support after data showed U.S. fourth-quarter gross domestic product increased at a 2.6 percent annual rate, held back by a modest pace of inventory accumulation. Economists polled by Reuters had forecast a 3 percent increase.
“Today’s U.S. growth print may prompt some modest soul-searching amongst interest rate bulls but does little to change the fact that the economy has considerable momentum behind it,” Karl Schamotta, director of global product and market strategy at Cambridge Global Payments, said in a note.
The dollar slipped to a session low against the Japanese yen after Bank of Japan Governor Haruhiko Kuroda said the central bank expects the economy to continue growing at a moderate pace and inflationary expectations are picking up slightly.
The pound rose after Britain’s economy unexpectedly picked up speed in the last three months of 2017, adding to the view that the hit from the Brexit vote was not as bad as expected.
- Asian markets finished mixed on Friday, with the Hang Seng Index outperforming regional indexes ahead of the market close in Hong Kong
- The dollar wobbled after gaining overnight following comments from President Donald Trump about dollar strength
- Japan consumer prices in December were stable
Asian markets closed mixed on Friday as the dollar wobbled after gaining overnight following comments from President Donald Trump.
Tokyo’s benchmark Nikkei 225 index gave back morning gains to close lower by 0.16 percent, or 37.61 points, at 23,631.88. Major exporters finished the session mixed while financial names largely declined. Fanuc Manufacturing closed higher by 0.3 percent.
Automakers were a mixed picture. Toyota rose 0.18 percent and Honda closed lower by 0.23 percent. Suzuki Motor fell 3.51 percent after Maruti Suzuki India announced quarterly profit that was below expectations, according to Reuters.
- Corporate news and political news lifted sentiment in Europe on Friday.
- U.K. gross domestic product (GDP) data showed that the British economy had accelerated during the last three months of 2017, rising 0.5 percent according to data by the Office of National Statistics.
- President Donald Trump addressed world leaders in a speech at the World Economic Forum in Davos, Switzerland.
European stocks closed higher on the last trading day of the week, as investors digested new earnings reports.
U.S. stocks closed sharply higher on Friday as quarterly earnings top estimates, while the economy continues to grow.
The Dow Jones industrial average rose 223.92 points and hit intraday and closing records. The 30-stock index finished the session at 26,616.71.
The S&P 500 gained 1.2 percent to 2,872.87, with tech and health care as the best-performing sectors, and also reached an all-time high. The broad index also had its biggest one-day gain since March 1, 2017.
The Nasdaq composite advanced 1.3 percent to close at 7,505.77 and notched record highs. It also had its best day since Jan. 2.
The major indexes also posted weekly gains of at least 2 percent.
AbbVie, Honeywell, Intel and Rockwell are among the latest companies to report better-than expected earnings and revenue.
Shares of AbbVie and Honeywell rose 13.8 percent and 1.9 percent, respectively, while Intel gained 10.6 percent. Rockwell advanced 1.7 percent.
Overall, this earnings season have been strong thus far. Of the S&P 500 companies that have reported as of Friday morning, 80 percent have reported-better-than-expected earnings while 82 percent have surpassed sales estimates, according to data from Thomson Reuters I/B/E/S.
“The beat rates and growth rates are as good as we have measured for these 133 companies in any earnings season over the past five years,” said Nick Raich, CEO of The Earnings Scout, in a note. “Most importantly, 1Q 2018 EPS estimates are rising and that is the first time we have seen aggregate S&P 500 EPS estimates going higher in any earnings season in seven years.”
Wall Street also digested key U.S. economic data on Friday. The Commerce Department the U.S. economy grew by 2.6 percent during the fourth quarter of 2017. Economists polled by Reuters expected a gain of 3 percent.
“These are disappointing numbers, no doubt, especially because 3% growth has become a sort of new normal,” Mike Loewengart, vice president of investment strategy at E-Trade, said in a note. ” Still, 2017 was one of the best economic runs in years. … This economy is still chugging along, especially as businesses are projecting really positive outcomes thanks to tax reform.”
Meanwhile, U.S. durable goods orders rose 2.9 percent in December, according to the Commerce Department. Economists expected an increase of 0.8 percent.
Elsewhere, the U.S. dollar traded 0.4 percent lower, adding to this week’s losses. The greenback is down 1.5 percent for the week, following comments made by Treasury Secretary Steven Mnuchin.
At the World Economic Forum in Davos, Switzerland on Wednesday, Mnuchin said he welcomed a weaker U.S. dollar, adding that it would benefit the country’s trade. His remarks sent the currency to its lowest levels in three years.
Defending City analysts and traders is one of those things you never thought you’d do. Like deciding maybe Toby Young’s not such a bad bloke.
Or that Donald Trump might not be as nuts or as bald as his critics say. That seems to be where I’ve arrived. Traders and analysts are getting it in the teeth lately for two main issues: first, for insider trading that is never prosecuted; second for lousy share tips.
The evidence for the first is that share prices move ahead of takeover announcements or profit warnings. Arguably, that’s the traders doing their job, being alive to rumours and keeping clients informed. They may not actually have information that could be described as “inside”. In fact they may, as the critics would have it, know nothing at all.
My favourite City dealer says he traded on genuine inside information just once. And still managed to lose money by betting the wrong way. He may have been in the wrong game. He sells advertising space now, which is, you know, a lot more honest.
In any case, share prices also move ahead of any number of other rumours that turn out to be untrue.
Shares move on gossip. They move because of the weather. They move because some big cheese is getting divorced and sells everything in tears of anger. The FCA’s failure to convict in this area could suggest there is less insider trading than the popular mind would have it, rather than that the regulator is simply useless.
Analysts’ share tips being as much use as Crystal Palace’s goalkeeper is harder to deny. Work yesterday by AJ Bell found that you’d do better to sell the shares the supposed pros want you to buy and buy those they want you to sell. It’s damning stuff.
In a previous life, I ran a share tip competition between several City professionals and the office cat (who liked shares in Whiskas). The cat won. The next time, I replaced the cat with a Page 3 girl called Lacey Banghard. Banghard won. By miles.
What purpose this served, beyond amusement, was to show that very few people are any good at picking individual shares. It’s a fluke. An arrow thrown blind at a dart-board. Sometimes you hit double top. And sometimes you take someone’s eye out.
But the share recommendation is the least important part of what the analyst is doing.
An analyst friend defends himself thus: “Most investors would tell you that they have no interest in any analyst’s recommendation or target price. What they use us for is to add value to their own understanding of a company, tell them something they don’t know, provide quick interpretation of some turgid 200-page regulatory development. Most of us only cover 10 stocks or so. Most fund managers will look at hundreds.”
And the fund managers don’t have to take the analysts’ recommendation. Deciding whether to buy or sell is their job.
Analysts are often too close to management, but without them the “information asymmetry” between what investors and managers know will be wider. This will mean larger price swings when news (eventually) emerges. This is particularly the case for growth firms (who don’t have big PR teams to signal their business model to the market).
So, companies need access to capital to grow their businesses, do deals and generally keep on trucking. That’s the fundamental purpose of capital markets — to put together firms that need cash with people who want to give it to them.
For that to happen, fund managers need to have at least a passing understanding of the companies they’re thinking of backing with our pensions.
Otherwise they’re chucking darts made of your £50 notes into a dartboard (even more than they already do). And that’s where analysts come in. They in theory know the companies, know which ones are looking cheap, and help the fund managers help you. And fund managers need to be pretty confident that they can trouser profits when a bet goes well, or get out of Dodge when it goes wrong. For that you need a functioning secondary market. And for that you need traders.
If you took away analysts, fund managers would ignore companies from the middle of the FTSE 250 downwards. Those are still pretty big firms employing a lot of people.
Then those companies don’t get the cash they need to compete. They’d fold. The economy goes down an even deeper toilet. Then you’re out of work, just like those traders and analysts you hate.
Next week: Donald Trump.
Game Digital shares crashed back down to earth today, after its head bean counter suddenly quit the retailer.
Chief financial officer Mark Gifford was a driving force behind the gaming group’s turnaround in recent years – including developing the events and Esports divisions and securing refinancing for the group’s Spanish operations.
The share-price dive comes less than two weeks after the firm reported bumper Christmas trading figures with sales up 5.2%, driven by games such as Middle-earth: Shadow of War and Call of Duty: WWII.
Shares were off 4.8p at 42.2p as the video games retailer announced its search to find a successor would begin immediately. Gifford joined a year after Game’s 2014 float at 196.5p.
The session saw the High Street’s chief financial officers engaging in musical chairs, with Superdry’s Nick Wharton also announcing his departure. He will be replaced by by Ed Barker, currently director of group finance, and previous interim chief financial officer at Sainsbury. Superdry shares lost 5p at 1834p. Retail analyst Nick Bubb said of the stock falls: “I guess the City always suspects that a retiring CFO knows something about the firm’s financial future that they don’t…”
Sticking with retail, Pets at Home posted revenue growth up 9.6% in its third quarter – boosted by its merchandise division. One of the most shorted stocks on the market, shares in the dog lover’s paradise shot up 10.10p at 192.1p. It meant another bad day for short sellers in the retail market following Ocado’s rise yesterday.
AJ Bell investment director Russ Mould said: “Having been carried out by online grocer Ocado yesterday short sellers are being bitten by Pets at Home today, as the specialist retailer and provider of veterinary and grooming services reveals stronger-than-expected trading for the third quarter.’
Meanwhile Goldman Sachs was chucking its weight around the market. The banking giant – along with Credit Suisse – downgraded Martin Sorrell’s WPP, whose shares were off 29.2p at 1329.2p. Matthew Walker, analyst at Credit Suisse, said: “WPP’s top four clients including Ford, Unilever, P&G and Nestle are all likely to seek to drive efficiencies on agency fees. There are not enough big new economy clients in the agency space. WPP represents Google (a top 10 client) but conflicts could prevent it from being the lead agency for Facebook or Amazon as well.” But despite WPP’s losses the FTSE 100 was up 15.20 points at 7730.95 points.
Outside the top flight, social housing contractor Lakehouse cut its losses following poor results at the end of 2016. The firm – which was responsible for the fire alarms at Grenfell Tower – notched up a pre-tax loss of £3.1 million for the year, compared to a loss of £35.7 million the year before. Shares in Lakehouse gained 2.8p at 39.8p.