Stock market crashes as virus spreads in Pakistan

KSE-100 closes 2,375 points lower; marks biggest daily loss since 2009

KARACHI: Following the global trends, Pakistan Stock Exchange (PSX) began the first trading week on a bearish note, with the benchmark KSE-100 Index recording its biggest daily fall since 2009.

Dropping below the 34,000 mark, the KSE-100 Index lost 2,441.98 points or -6.77pc to touch its intraday low at 33,618.90. The sudden plunge at the start of the session caused yet another 45-minute ‘market halt’ (4th in the last six sessions). As trading resumed, the index failed to find any positive triggers and settled lower by 2,375.97 points at 33,684.91.

Among other indices, the KMI-30 Index lost 3,890.87 points to end at 52,017.17, while the KSE All Share Index dropped 1,424.74 points, closing at 23,867.22. Of the total traded shares, 18 advanced and 289 declined.

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According to analysts, investors resorted to panic selling on Monday following the increase in the number of coronavirus cases in the country. Global markets also took a hit as the US Federal Reserve and other central banks unveiled emergency measures to support their coronavirus infected economy.

Saad Rafi, head of sales at Al Habib Capital, commented, “The PSX today was primarily influenced by the prevalent bearish spell in regional markets, drop in US Crude prices and its negative impact on E&P stocks and rising concerns about the negative repercussions of coronavirus on Pakistan’s economy.”

Saad Hashmi, CEO of BMA Capital, said, “The market fell across the board on concerns over coronavirus impact. Globally, the coronavirus spread escalated over the weekend with all markets, including those in Asia and Europe, taking a significant hit. International commodity prices, including that of oil, also fell.”

As the number of coronavirus cases has risen drastically, the impact is likely to weigh on other aspects of the financial sector. “PKR depreciation, lower yields and selling panic in international markets indicate more flight of capital from Pakistan. Mutual funds were seller due to redemption call from clients.”

Adnaan Sheikh, Assistant Vice President (Research) at Pak Kuwait Investment, noted, “Coronavirus fears are culminating into panic sell-off in global stocks, and Pakistan is no different.”

“The mood remained bearish on Monday as highest number of new cases were reported today. Over the weekend, cases have emerged in Lahore as well. The virus fear is hitting hard and so is the fear of foreigners’ pull-out from the debt market. This is technically, fundamentally and emotionally ‘blood-on-the-street’,” said Arsalan Soomro, Managing Director KASB Securities.

MONETARY POLICY

As for the State Bank of Pakistan’s monetary policy, which would be announced tomorrow (Tuesday), Soomro said, “The monetary policy statement would guide the market direction from tomorrow onwards. The impact of stocks is sometimes irrational, non-fundamental and dooms-day depiction. Classic human behavior amidst pessimism.”

Despite popular belief, the bloodbath in the PSX is not a direct result of the Fed rate cut. Saad Rafi opined, “The Fed rate cut did not directly influence the PSX today. It only raised expectations that the SBP may follow the Fed’s footsteps and slash the key benchmark rate. Although the 100bps discount rate cut expected tomorrow and oil prices decline might off-set the negative impact in the later week, we foresee index bottoming out tomorrow.

“Considering how the Fed rate cut was done with the intention to boost confidence, the opposite has been witnessed. Theoretically speaking, there should be a positive impact on stock markets, but the opposite happened due to coronavirus panic which [forced] people to keep cash as safe heaven.”

MARKET SUPPORT

Naushad Chamdia, CEO of Standard Capital Securities, said, “The government should intervene and curb the short selling and bring the market support fund as most of the European and world markets have taken this step. This should be done on an urgent (support fund) and temporary basis — 20 days or 30 days (curbing short selling). Otherwise, this free fall will trigger a redemption call on mutual fund industry which will further bring the market down to an alarming level.”

As far as support levels are concerned, a general consensus in the market is that they are irrelevant now and that the market will continue to mimic global markets.

However, Fahad Hussain Khan, Deputy Head Research at Adam Securities, believes that the market may take support at 33,000 and 32,350. Closing below 32,350 may lead to revisiting 19th August 2019 low of 28,670.

FED RATE CUT

Equity markets around the world have gone red following the Fed slashing their policy rate to 0pc. Facing highly disrupted financial markets, the Fed had further reduced the rate of emergency lending at the discount window for banks by 125bps to 0.25pc along with increasing the term of loans to 90 days.

The Fed also cut reserve requirement ratios for thousands of banks to zero. All the actions taken by the Fed on Sunday make it the largest single-day set of moves the bank has undertaken since the global crisis.

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Ariba Shahid
The author is a business journalist at Profit. She can be reached at [email protected] or at twitter.com/AribaShahid
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