Stock market retreats amid absence of triggers

The KSE-100 index has remained volatile in the early half of the day on Tuesday.

KARACHI (Dunya News) – The Pakistan Stock Exchange (PSX) on Tuesday has been retreating over uncertainty after “serious reservations on the proposed New Brokers Regime (NBR)” were raised by PSX Stockbrokers Assoc¬iation (PSA), as stated in a letter to the Securities and Exchange Commission of Pakistan (SECP).

The KSE-100 index has remained volatile in the early half of the day amid weak trading interest by investors, recording sharp swings albeit in a narrow range, and dropped to 42,238.09 points after losing 301.14 points or 0.71 percent as of 12.09pm. The Index closed at 42,539.23 points yesterday, and opened at 42,504.69 today.

Meanwhile, the PSX management has convened a meeting on Wednesday to bring brokers on board.

The letter to the regulator added that the regulator seems unaware of progress made by stock brokerage industry over anti-money laundering, countering terror financing and the Financial Action Task Force (AML/CFT/FATF) regimes.

“Moreover, the stock market declined by more than 50pc from May 2017, when it was at 53,500 level to 28,000 without any clearing and settlement default.”

“This clearly reflects that exposure margins, acquired by front-line regulators, have also minimised, if not eroded the existence of clearing and settlement risk,” the letter added.

The situation will not strengthen the capital market nor restore investor’s confidence, and the regulator’s actions will aggravate crises, the letter stated.

The PSA has referred to the Pakistan National Risk Assessment report issued by the Ministry of Economic Affairs in September 2019.

Several traders are of the view that Pakistan is unlikely to exit the grey list of the Financial Action Task Force (FATF) next month despite an active support of its close ally China and tactical support of some Western countries.

Traders had opined that the market was still in search of a direction, which could be provided by the State Bank monetary policy and the herald of corporate results reporting season next week.

Traders were of the view that after a major run-up since August last year, the index was consolidating at the current levels before moving forward. “Early trade has been witnessing much of the volatility and the index has been fluctuating from negatives to positives and vice-versa.”

Earlier, investors’ optimism continued as they saw the market back in the green after two earlier dismal years of negative returns.

From Aug 16, 2019 when the benchmark index had hit the pit at 28,765 points, the market has witnessed a spectacular rally that has carried it up by more than 50pc in fewer than five months.

Improvement on the external front together with stability in the Pakistani Rupee was expected to reassure foreign investors.

Asian stocks crumble

Asian stocks extended a global selloff on Tuesday as China took more drastic steps to combat a deadly new coronavirus, while bonds shone on expectations central banks would need to keep stimulus flowing to offset the likely economic drag.

As the death toll reached 106 in China, some health experts questioned whether Beijing can contain the virus which has spread to more than 10 countries, including France, Japan and the United States. No deaths have been reported outside of China so far.

China has already extended the Lunar New Year holiday to Feb. 2 nationally, and to Feb. 9 for Shanghai. On Tuesday, the country’s largest steelmaking city in northern Hebei province, Tangshan, suspended all public transit in an effort to prevent the spread of the virus.

With Chinese markets shut investors were selling the offshore yuan and the Australian dollar as a proxy for risk. Oil was also under pressure as fears about the wider fallout from the virus mounted.

MSCI’s broadest index of Asia-Pacific shares outside Japan. US slumped 1% in early Asian trading on Tuesday. Japan’s Nikkei was 0.9% down, Australian shares stumbled 1.4% and South Korea’s Kospi index skidded 3%.

“The wildcard is not the fatality rate, but how infectious the Wuhan virus is,” Citi economists wrote in a note.

“The economic impact will depend on how successfully this outbreak is contained.”

Analysts said travel and tourism would be the hardest-hit sectors together with retail and liquor sales though healthcare and online shopping were seen as likely outperformers.

On Monday, key indexes for British, French and German equity markets slid more than 2%, as did pan-European markets on worries about the potential economic impact from the deadly virus. Stocks on Wall Street fell more than 1%.

E-Mini futures for the S&P 500 ESc1 reversed some of the losses after slumping 1.6% overnight for their biggest single day percentage loss since last October. They were last up 0.25%.

Investors were still trying to figure out the potential impact from the coronavirus, given it would be at least a couple more months before official economic data are released.

“How do we fully price risk, if we have such limited visibility on how bad this could get, not just in terms of contagion, but the impact this will have on economics?” said Chris Weston, strategist at broker Pepperstone.

Analysts at JPMorgan said the coronavirus outbreak was an “unexpected risk factor” for markets though they see the contagion as a regional rather than a global shock.

“The rise in risk aversion and worry of a region-wide demand shock ... means the knee-jerk market reaction will likely be to richen low-yielding government bonds,” JPMorgan analysts wrote in a note.

“Concerns about coronavirus contagion has driven yields lower and is the latest risk of a series that have driven U.S. Treasury (UST) yields far below what fundamentals indicate. We remain short 30-year UST.”

Treasury 10-year note yields US10YT=RR dived as deep as 1.598% on Monday, the lowest since Oct. 10. Yields on two-year paper also fell sharply while Fed fund futures rallied as investors priced in more risk of a rate cut later this year.

Futures imply around 35 basis points of easing by year end FEDWATCH. The Federal Reserve is widely expected to stand pat at its policy meeting this week, but markets will be sensitive to any changes to its economic outlook.

Australian and New Zealand bonds gained on Tuesday as did Japanese government bonds (JGB) with yields on 10-year JGBs set for their fourth straight day of losses.

JPMorgan said they have not yet altered their developed or emerging markets forex forecasts though they were taking profits on their “bullish” EUR/USD positions and remain “considerably long” on Swiss francs which benefits from safe-haven demand.

Short build-up in the Aussie was another risk hedge. The currency was last down 0.1% at $0.6752, on track for its third straight day of losses.

The euro was steady at $1.1018.

The yen, which has been rising for the past five sessions, dipped slightly to 108.98 per dollar.

In commodities, Brent crude LCOc1 was off 27 cents at $59.05 while U.S. crude CLc1 eased 22 cents to $52.92.

Spot gold XAU= was flat at $1,581.60.