THIRD SOUTH ASIAN CAPITAL MARKETS CONFERENCE-2009

Weekly Recap - Week ending

A horrible experience this year for investors got even worse this week. The losses in the major indices were material and new lows were set in this bear market move.

In fact, with the losses seen this week, the entirety of the gains recorded during the bull market move from the October 2002 low to the October 2007 high were wiped out at one point and the S&P fell to levels seen in 1997.

Uncertainty continued to be the albatross around the market's neck as some key corporate developments (or lack thereof) and a number of economic releases fed the market's concerns about not knowing how deep and how long this economic slowdown will last.

Among the more stunning developments this week was the collapse in Citigroup's (C) stock price. To be exact, Citigroup plummeted 60% to $3.77 per share, or nearly the equivalent of its ATM fee.

Balance sheet concerns were at the heart of the sell-off as burgeoning reports of growing weakness in the commercial loan category fanned fears that Citigroup, and the financial sector, would need to raise a lot more capital to offset losses.

Citigroup bore the brunt of the selling, though, as its management rankled investors Monday when it didn't indicate senior managers would forego bonuses this year, yet announced plans to cut up to 52,000 jobs from the bank's payroll.

That was dumb corporate development #1. Dumb corporate development #2 was the CEOs of the major U.S. auto makers flying to Washington on private jets to beg Congress for billions of dollars of taxpayer bridge financing to avoid bankruptcy.

Ignore the Stock Market Until February

Down in the morning, up in the afternoon. Or is it the other way around? The topsy-turvy stock market is tough to read.

In the last year, the Dow Jones Industrial Average has briefly been over 13,000 and below 8,000. The past month has felt like the Cyclone roller coaster on Brooklyn's Coney Island -- lots of ups and downs, the whole rickety thing feeling like it's going to crash at any minute.

Great investors are taught to listen to the market. Each tick of the tape has something to say about expectations for growth, inflation, policy changes and looming recessions. The stock market is like a giant mass of pulsing plasma doing price discovery and a game of hot potato, getting stocks into the correct hands with the right risk profile. It's way too big for any one person to manipulate, let alone touch directly. Instead, millions of us provide input with our buying and selling decisions.

When it's at its most efficient, with buyers and sellers neatly matched up at the right price, it's a pretty good predictor. The Crash of 1929 announced a recession, and the wake-up call unheeded might have caused many of the bad policies leading to the Great Depression. The Crash of 1987? Not so much.

You see, the market is a great manipulator. In September, the Dow dropped 700 points intraday after the House of Representatives voted down the Treasury's TARP bank-rescue bill. Spooked, the House passed the bill the next week. Or how about this? The Dow was up 300 points on Election Day applauding an Obama victory and then down 1,600 points since.

The market can also be a bold-faced liar. On Jan. 22, the Fed announced an emergency 75-basis-point rate cut in response to huge drops in European markets. A few days later, it came out that a rogue trader at Société Générale lost them $7 billion and the bank was unwinding his positions. Oops.

So which is it now: an efficient mechanism or a manipulating liar? Should you listen to it warning of doom or anticipating renewal? I'd say stick wax in your ears and don't listen to the market until February.

Don't get me wrong. The freezing of the credit markets is wreaking havoc on the world economy. Corporate profits are dropping. Central banks are fighting off deflation and may not turn off the spigots fast enough -- which could ignite runaway inflation. But because of the credit mess, I am convinced the stock market is at its least efficient today. Don't read too much into any move. Here are the five biggest dislocations taking place:

- Tax-loss selling: Whenever you have a loss in a stock -- and who doesn't -- it's always tax smart to sell it, take a tax loss and either buy something similar or wait 30 days and buy the original one back. December can be an ugly month of indiscriminate selling. The December effect will be huge this year.

- Mutual-fund redemptions: Mutual funds are also dumped for tax losses. When the stock market is down in the morning, it's usually because of mutual-fund redemptions.

Fidelity's giant Magellan fund, down 56%, is one of many in the $6 trillion stock-fund business having an awful year. As investors call or click to get out of these funds, Fidelity and the others have to unload shares the next morning to raise cash. This forced-selling overwhelms the system. New York Stock Exchange specialists, who are supposed to maintain an orderly market, stop buying and back away. You get huge drops, which can unnerve even more investors and cause them to redeem.

- Mutual fund cap-gain distributions: To make matters worse, in December mutual funds do capital-gains distributions. In a down year like 2008, you would think there are no taxes to pay. Think again. Legg Mason's Value Trust, run by Bill Miller, outperformed the market for 15 years by buying many "unvalue" names like Amazon. As investors redeem, he is forced to sell many of these stocks originally purchased at very low prices, triggering huge capital gains in a year his fund is down 62%. You can almost guarantee investors also will sell more of these funds to pay their unexpected tax bill.

- Hedge-fund redemptions: Instead of overnight selling like mutual funds, hedge funds typically require 45 days' notice for investors to get out of a fund. They've been furiously selling since September to raise cash to pay investors. This usually shows up as a set of stocks that just go down and down and down with no obvious explanation.

Rubbing salt in hedge-fund wounds is the fact that Lehman Brothers was a prime broker to many hedge funds, holding their shares. While Lehman's bankruptcy was not a problem in the U.S., in England the policy is to freeze accounts until the mess can be sorted out. There are billions in assets locked in this bankruptcy, and hedge funds are forced to sell positions in the U.S. and elsewhere to raise cash, exacerbating the downside here.

By the way, when hedge funds are down for the year, they work practically for free until they make up the loss. We'll see hedge funds close and stocks liquidated as -- no surprise -- hedge-fund managers like to get paid.

- Margin calls: Whenever stocks go down sharply, you quickly find who owns them with debt. We have seen spectacular margin calls, a requirement for more capital to cover share losses. Chesapeake Energy CEO Aubrey McClendon unloaded 33 million shares to cover losses. Viacom CEO Sumner Redstone had a forced sale of $400 million in Viacom and CBS shares because of a margin call on other stocks. You can bet many not-so-public margin calls are behind many huge price drops. These usually take place in the last 30 minutes of trading.

So won't January be alright once these dislocations weighing on the market are lifted? The January effect is supposed to be positive.

Well, often money managers are fired at the end of disastrous years. A new manager comes in, looks at the existing positions and dumps them all and remakes the portfolio with new stocks that he likes, thus generating more selling. My favorite Wall Street adage suggests that the stock market trades to inflict the maximum amount of pain. Remember, you can only ignore the stock market for so long. Once everyone thinks it can only go down . . . it might go up.

Mr. Kessler, a former hedge-fund manager, is the author of "How We Got Here" (Collins, 2005).

TradingMarkets 7 Stocks You Need to Know for Monday

Another roller coaster saw stocks rally from a steep sell-off after midday only to fade into the close.

The Dow lost 337.94. The Nasdaq Composite closed lower by 79.85. And the S&P 500 ended the day off 38.00.

Here are 7 Stocks You Need to Know for Monday.

In a memo to employees, Citigroup (NYSE:C - News) CEO said that the company's revenues are "strong and stable." The Short Term PowerRating for C is 7.

Sun Microsystems (NasdaqGS:JAVA - News) announced on Friday that it was cutting up to 6,000 jobs. The Short Term PowerRating for JAVA is 5.

Reporting a quarterly loss of more than $25 billion, mortgage finance giant Freddie Mac (NYSE:FRE - News) petitioned the U.S. Treasury for more than $13 billion in emergency funding. The Short Term PowerRating for FRE is 5.

Belgian brewer InBev won U.S. antitrust approval for its proposed acquisition of Anheuser-Busch (NYSE:BUD - News). Shares of BUD have gained more than 20% since making an oversold low in late October. The Short Term PowerRating for BUD is 5.

After a dramatic intraday reversal on Thursday, Dell (NasdaqGS:DELL - News) was one of the best performers in the S&P 500 on Friday, rallying by more than 6% intraday. The Short Term PowerRating for DELL is 7.

More retail earnings on deck for Monday. Target (NYSE:TGT - News) reports before the bell, with analysts expecting earnings per share of 0.49. Also reporting before the market opens on Monday is Lowe's (NYSE:LOW - News). Lowe's is expected to announce EPS of 0.28. The Short Term PowerRatings for TGT and LOW is 5 and 4 respectively.

Do you think Target will be Up or Down on Tuesday? Go to TradingMarkets.com to play the TradingMarkets' Up or Down Stock Contest for your chance to win $1,000 each month by correctly guessing the direction of a stock!

Sensex down 151 points in choppy trade

Domestic share indices ended 1 per cent down after a choppy session as traders unwounded positions ahead of the weekend as they expect more negative news flows from global markets next week, dealers said.

The Bombay Stock Exchange’s 30-share Sensex closed at 9385.42, down 150.91 points, or 1.6 per cent, after moving between a low of 9267.49 and a high of 9826.25. National Stock Exchange’s 50-share Nifty ended at 2810.35, down 38.10 points, or 1.3 per cent. Intraday, it moved between 2778.80 and 2938.80.

“Foreign funds sold today in most of the index majors. Also there was no support from domestic funds either. Everybody is expecting more bad news in store and perhaps overseas markets came off lows because of this,” an institutional dealing head said.

Moody’s Economy.com, a subsidiary of global rating agency Moody’s Investor Services, today said that India may face slowdown in foreign direct investment due to heightened risk aversion among investors.

Share indices had risen 3 per cent after headline inflation for the week to November 1 slipped to 8.98 per cent from 10.72 per cent the previous week, its lowest in nearly six months raising hope that the Reserve Bank of India may take more monetary measures.

Investors here ignored positive cues from European markets, which rose around 3 per cent today.

Turnover on NSE and BSE combined was Rs 14,457 crore today against Rs 13,881 crore on Wednesday.

KSE remains static on absence of positive news

KARACHI: The Karachi stock market did not show any change in its index on the last trading day of the week Friday as most of the investors stayed away from the ring on increase in discount rates and investors’ increasing concerns over uncertainty regarding floor unfreeze and government’s bailout plan of Rs 50 billion, analysts said.

The Karachi Stock Exchange (KSE) 100-share index remained unchanged at 9,184.09 points. The KSE 30 index and KMI 30 index also remained stable at 9,981.93 points and 10,003.99 points respectively. The market turnover went down to 13.63 percent and traded 0.57 million shares as compared to 0.66 million shares traded in the previous session. The overall market capitalisation remained unchanged at Rs 2.827 trillion. Out of 24 companies, five closed in the positive zone, five in negative while 14 remained unchanged.

Analyst at Aziz Fida Hussein and Company Husnein Asghar Ali said the likely impact of unasked doubts expressed by S&P rating agency over the likely stabilisation programme, was neutralised by the timely statement by the adviser to PM on finance, who reaffirmed the early claims that in near future the nation would receive billions of dollars from various donor institutions and economies.

Hopes of unfreezing have seemingly tarnished as the meeting held on Thursday has reportedly ended without any conclusion, however to keep the sensation, regarding unfreezing, modalities and date for the special session alive, yet another unconfirmed news of a meeting amongst officials engulfed the arena, meeting is said to be scheduled for Friday and then the next would be held on the 18th.

The only logic that could be established with the date is that the outcome of friends meeting and its support in reducing the pressure on unfreezing of the local bourses would be discussed. Analyst at Shahzad Chamdia Securities Ahsan Mehanti said investors await outcome of board of directors meeting with SECP to discuss market floor condition while foreign selling continued as downgrading of Pakistan foreign currency rating was decreased by a foreign credit rating agency.

National Assets was the volume leader in the share market with 0.14 million shares as it closed at 50 paisas after opening at 42 paisas making a financial gain of eight paisas. Mukhtar Textile traded 0.11 million shares as it closed at 54 paisas after opening at 53 paisas making a financial gain of one paisa.

No trading activity was observed in the futures market.

China shares fall as stimulus plan optimism wanes

SHANGHAI, China (AP) — Chinese shares fell Tuesday as optimism about the government's multibillion dollar stimulus package gave way to renewed caution about the economy and profit-taking, with losses led by financial stocks and other heavyweights.
The benchmark Shanghai Composite Index closed down 1.7 percent, or 31.19 points, to 1843.61 in thin trading. The Shenzhen Composite Index for China's smaller second exchange dropped 0.6 percent to 494.54.
"The package encouraged pessimistic investors yesterday, but it usually at least takes three months for policies to be implemented. And anything could happen during the period," said Xu Zhiyuan, analyst for Capital Edge Investment & Management. "Investors preferred to pull out and watch the situation more after getting in."
Investors also worried that falling inflation could turn to deflation, analysts said.
The government reported Tuesday that consumer prices rose 4 percent in October from the year-earlier period, down from a 4.3 percent rate in September.
Industrial & Commercial Bank of China Ltd., China's biggest commercial lender, fell 1.8 percent to 3.92 yuan. Bank of China Ltd. lost 1.5 percent to 3.24 yuan, and China Construction Bank Ltd. dropped 0.9 percent to 4.35 yuan.
Ping An Insurance Ltd. gave up 2.4 percent to 25.82 yuan after the company said it had no plans yet to raise new money, a move that analysts had said would indicate it believed the global economic downturn had reached its lowest point.
China Life Insurance, the country's biggest life insurer, sank 3.8 percent to 19.9 yuan.
Sinopec, or China Petroleum & Chemical Corp., Asia's biggest refiner by volume, tumbled 3.4 percent to 7.34 yuan. China's biggest oil producer, PetroChina Ltd., fell 2.1 percent to 10.99 yuan.
Construction-related shares bucked the trend as the government's stimulus package promised more spending on infrastructure.
Hebei Taihang Cement Co. surged by the daily limit of 10 percent for a fifth straight day to 3.82 yuan, and China Railway Erju Ltd. gained 5.4 percent to 7.37 yuan.
Real Estate giant China Vanke Ltd., rose 2.3 percent to 6.27 yuan, and rival Poly Real Estate Group, jumped 3.1 percent to 14.54 yuan.
On currency markets, China's yuan was traded 6.8273 against the U.S. dollar late Tuesday afternoon, down from Monday's close of 6.8266.

KSE-index remains unchanged, turnover at lowest ebb

KARACHI: Karachi Stock Exchange (KSE) today witnessed yet another dull and dreary day, as the investors with their shattered confidence preferred to abstain taking any risk and remained lackluster, which saw the volume of trade sliding down to a record low-level, while the KSE-100 index closed unchanged.Trading today althrough the session moved at snail’s pace, as the alarmingly deteriorating economic situation in the country and the apathetic attitude of the rulers kept the investors bewildered about the future state of business, who with their fingers crossed waited impatiently for some good news, when the market closed with no such thing in sight. The economic mangers dragging their feet on IMF package finalization and failing to take some positive measures halting the meltdown of the rupee value has further worsened the situation and drove the investors on the sidelines as mute onlookers.

Privatisation can yield $2-3bn

ISLAMABAD, Nov 4: The government expects to raise $2 billion to $3 billion from the sale of state-owned entities like the National Power Construction Company, Jamshoro Power Company, Faisalabad Electric Supply Company, Heavy Electrical Complex, and the Qadirpur gas field.Unveiling the privatisation plan on Tuesday, Privatisation Minister Naveed Qamar termed it the ‘cornerstone’ of the economic agenda to generate funds for bridging the balance of payment gap.The policy, discussed at a meeting of the Privatisation Commission, would focus on encouraging private sector’s role and minimising government intervention in state-owned entities.An official told Dawn that the meeting decided to submit a summary to the cabinet committee on privatisation for privatising the Small and Medium Enterprise Bank. The committee is headed by Prime Minister Yousuf Raza Gilani.The official said that recommendations about various other ongoing and upcoming sales would also be submitted to the committee.“The privatisation of public-sector entities will remain cornerstone of the government’s economic agenda,” Mr Qamar said, adding that the private sector had the “capability, expertise and resources to run the businesses” and the government should “only focus on policy matters”.An official announcement said that the minister directed the Privatisation Commission to exercise “utmost transparency”, while processing the transactions at different levels.The privatisation process “brings efficiency, enhances production, attracts fresh investment, creates new job opportunities, and generates (additional) revenue”, he said.The meeting also finalised the bidding schedule for the privatisation of the National Power Construction Company (NPCC) and formulated recommendations for the approval of the CCOP.Pak Elektron Limited (PEL), ICC (Pvt) Ltd, Al-Tuwariqi Steel Mills, Karachi, Saudi Cable Company Ltd, KSA, JS PE Management, Karachi, Alfanar Construction Company, KSA, and Zad Investment Company, KSA, have nearly completed the required process.The government will also expedite the process for the sale of 26 Pakistan Tourism Development Corporation (PTDC) motels and restaurants.

Profit booking snaps rally; Sensex ends 5% lower

MUMBAI: The pull-back rally that began two weeks back came to an end Wednesday as traders booked profits. The global markets once again faced the gloomy reality of recessionary pressure after the US presidential elections were over.
Bombay Stock Exchange’s Sensex closed at 10,120.01, down 511.11 points or 4.81 per cent from the previous close. The index touched an intra-day low of 10,051.52 and high of 10,945.41. It was 50 points short on either side of breaching the psychological levels 10,000 and 11,000. National Stock Exchange’s Nifty ended below crucial support of 3000. The index fell 4.68 per cent or 147.15 points to close at 2,994.95. It touched an intra-day low of 2971. The indices have gained over 40 per cent since the lows of Oct. 27. “Global markets gained momentum in last six days. We are in the middle of bear market rally and a correction was on expected lines. Market will remain in a trading zone unless it crosses 10,800 on the Sensex. On the down side, 2250 level on Nifty seems unlikely to be broken,” said Manish Sonthalia, vice president, equity-strategy, Motilal Oswal. One of the reasons for the sharp correction was the fall in Reliance Industries. The oil & gas major, which holds 15 per cent weight in the Sensex, ended 12.76 per cent lower. The index heavyweight fell on reports that it has shut down five polyester units at its Patalganga plant soon after offering exit option to it employees. “The correction in Reliance Industries was mainly on account of fall in petrochem product prices which have declined 20-40 per cent in the past four months. Any fall in petrochem prices results in equivalent drop in EBITDA margins. GAIL also bore the brunt (down 15%),” Sonthalia said. Secondline stocks, however, fared better than their larger brethren. BSE Midcap Index ended 1.5 per cent lower and BSE Smallcap Index declined 1.74 per cent. Tata Steel (-10.05%), Reliance Communications (-9.5%), DLF (-8.79%), Jaiprakash Associates (-10.01%) and HDFC (-8.63%) were also badly beaten. Wipro (2.72%), Satyam Computer (0.27%) and Maruti Suzuki (0.08%) managed to end with gains. Amongst the sectoral indices, BSE Oil&Gas Index ended 9.44 per cent lower, BSE Metal Index slumped 6.88 per cent and BSE Realty Index declined 5.64 per cent. Market breadth, which was extremely strong at open, turned weak as profit booking set in. On BSE, 1,565 declines outnumbered 1,000 advances. Meanwhile, rally in European markets was arrested as economic problems took centrestage. FTSE 100 was down 1.82 per cent, DAX 30 declined 1.16 per cent and CAC 40 fell 2.25 per cent. In the US, stock futures dropped as traders focused on the deteriorating economy that newly elected president Barack Obama will have to take care of. Dow Jones futures were down 0.54 per cent, S&P 500 futures fell 0.75 per cent and Nasdaq futures declined 0.58 per cent.

CORRECTED - FOREX-Dlr recovers on weak stocks, ECB, BoE eyed

LONDON, Nov 5 (Reuters) - The dollar inched up against a basket of currencies on Wednesday, supported by weaker European shares as fears of a recession kept risk appetite low, while a decisive win by Barack Obama to become the next U.S. president also bolstered the currency.
The U.S. currency recovered its footing after sliding roughly 2 percent on a trade-weighted basis on Tuesday, but gains were limited as a slide in dollar interbank lending rates showed that tensions in money markets were starting to subside, easing some demand for the currency.
The euro and sterling were pressured lower after dismal figures offered more evidence that their economies continue to weaken, adding to the argument for big interest rate cuts by the Bank of England and the European Central Bank on Thursday.
The dollar initially rallied on the announcement that Democrat senator Obama had won the presidency [ID:nN05502158], and analysts said that a big slump in the euro zone services sector and weak UK output data also helped to prop up the U.S. currency, which suffered steep losses in the previous session.
Dismal economic data pushed European shares 1.6 percent lower on Tuesday, and analysts said that demand for high-risk positions, including assets in euros, sterling and other high-yielding currencies, would remain low as evidence of a global recession continues to mount.
"If we keep getting bad economic data, it will get harder for equities to keep rallying," said Adarsh Sinha, currency strategist at Barclays Capital in London.
"And so it will become more difficult for the dollar and the yen to weaken."