Capital Market trading in dangerous territory (20112008)

LEADER REPORT
KARACHI: Relatively better volumes were seen as 182k shares were traded throughout the day, on Wednesday while of 13 scrips were traded advancers and decliners remained at 4 each as values of 5 scrips remained unchanged.
Flooring likely to go by Dec 1st!
With the expectation of funding to be available by the Government as a rescue package for the equity markets, the flooring mechanism is expected to be removed by Dec 1st. A total package of Rs50bn is anticipated with Rs30bn to be allocated for "put option" available for overseas investors, while the remaining Rs20bn to be invested through NIT managed fund for investment in nine GoP securities to provide some breathing ground for CFS investors.
USD55bn to be attracted thru FoP
With the country facing dire consequences, the managers had no option but to resort to IMF help which is believed to fetch USD7.6bn to pay off the debts that the country owes. The recent approach to IMF funding is expected to bring some stability on the economic front which may result in revival of confidence of foreign investors, which was lacking earlier. A recent agreement over a road map with the Friends of Pakistan (FoP) forum is anticipated to lure investments worth USD55bn as has been requested by the officials in a meeting with the forum conducted recently in UAE.
Companies cut jobs while countries resort to rate cut
Scary economic conditions have forced giant companies to cut their costs, majority of which coming through cuts in salary bills. Citibank recently announced layoff of over 53,000 employees from its operations across the globe on top of the already relieved 23,000 employees at various levels. In addition, while companies are thinking of shedding employee numbers, Govts all across have resorted to interest cuts to provide relief to the economy, which still continues as Bank of England has decided to cut its policy rate by 150bps to 3 percent (with more on the cards), while India is anticipated to go for a further rate slash.
Revival in long term on the cards
The performance of the equity market will remain dull until the flooring mechanism remains in place, which is anticipated to go pretty soon. Investors are therefore advised to stay sidelined and adapt a wait & see approach. Investment on a long term horizon would become lucrative until the market is bottomed out, based primarily on dividend yields.