Nepse leaps by double digits on PM election
KATHMANDU, FEB 11 -
The share market exulted at the election of Sushil Koirala as the prime minister by sending stock prices skyward. The Nepal Stock Exchange (Nepse) had to apply the circuit breaker twice as the Nepse index leapt by double digits due to feverish trading. The stock market finally settled at 803.13 points
Koirala was elected the prime minister on Monday following a deal between the Nepali Congress (NC) and the CPN-UML in the Constituent Assembly (CA), marking the end of the temporary election government and raising hopes of sustained political stability in the country.
Nepse applied the circuit breaker 13 minutes after trading opened at 12 noon. Trading had to be halted a second time at 1.03 pm in a bid to allow prices to cool when the index surged 4 percent to 817.17 points.
This is the second time in five years that the Nepse index has crossed the 800 mark. On Dec 18, 2013, the index shot up to 806.82 points. The Nepse rose to an all-time high of 1,175 points on Aug 31, 2008 before starting to go downhill. It slid to 806.90 on Nov 13, 2008 after the Maoists formed the government,
subsequently sinking to its lowest of 292.31 points on June 15, 2011.
Stock analysts attributed Nepse’s upward swing to positive political developments that have strengthened investor confidence. “Investors have been encouraged by the alliance between two parties who have a pro-market image,” said Anjan Raj Paudel, past president of the Nepal Stockbrokers’ Association.
According to Paudel, many investors booked profit rights after the Nepse index rose. He added that the market was heading towards stability.
However, stock market expert Rabindra Bhattarai said that demand increased mainly from a number of investors who had been speculating for a long to benefit from the situation.
According to him, the market might not retain its stability as there was instant selling pressure immediately after an increase in share prices. “It shows that selling pressure from investors can go up for even a small rise in prices in the future too,” he added.
Analysts have expressed doubt whether the upswing will last. Economists said it was natural for the capital market to react enthusiastically to major political breakthroughs, but they were equally cautious to say that the gain may not last.
“Although the surge in the Nepse is a good sign among the economic indicators, we cannot fully rely on the current structure of the secondary market for the measurement,” said economist Bishwambhar Pyakurel. According to him, the market soared also as the UCPN (Maoist) expressed their commitment to play a creative role of the opposition party.
The trend of the last three-four years shows that the market has reacted positively to major political breakthroughs or agreements.
The capital market gained 26.95 points on May 30, 2010 after the tenure of the Constituent Assembly (CA) was extended by a year on May 28, 2010. But the good times did not last long. Similarly, the index went up by 16.61 points on Nov 2, 2011 when the parties signed the seven-point agreement on Nov 1, 2011, but plummeted within a few days.
Unlike in the developed markets where political changes have a direct impact on the stock market, Nepal’s experience has been mixed. Against all expectations, the stock market reacted positively when former king Gyanendra Shah took over absolute control of the government on Feb 1, 2005.
After Jana Andolan II and the signing of the comprehensive peace agreement in 2006, the country’s capital market went bullish until the first half of 2008.
However, when the then Maoist-led government hiked the capital gains tax and made disparaging comments about the share market, the Nepse started to decline. During the nine-month rule of the UCPN (Maoist), the Nepse lost 510 points.
On Monday, transactions amounted to Rs 400.97 million out of the trading of 1,199,648 shares. Market capitalisation reached Rs 817.66 billion.
Source: The Kathmandu Post
