Stocks edge down as negative sentiments prevail among investors

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

KARACHI (Dunya News) – The Pakistan Stock Exchange (PSX) on Wednesday has been witnessing bearish trend as negative sentiments prevail among investors after a plunge in global crude oil prices, unchanged main policy rate by the SBP at 13.25 percent for the next two months and serious reservations on the proposed New Brokers Regime (NBR) raised by PSX Stockbrokers Association (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 42,106.22 points after losing 192.97 points or 0.46 percent as of 01.24pm. The Index closed at 42,299.19 points yesterday, and opened at 42,306.65 today.

Yesterday, State Bank of Pakistan (SBP) Governor Dr Reza Baqir announced the bank’s first monetary policy announcement of 2020, and stated that the interest rate has kept unchanged as the inflation rate was expected to remain at 11 to 12 percent this year. The central bank has held rates at 13.25pc since July, when it took a pause from a series of hikes at a level some businesses and exporters have said is hampering investment.

He, however, said the improvements in supply were likely to reduce the inflation rate. “Inflation will start declining gradually, but when we’re not sure, we can’t say,” Mr Baqir said. He said an increase of Rs100 billion was being made in working capital scheme.

Inflation rose 12.6pc in the year to December, just below an almost nine-year high of 12.7pc hit a month earlier, as rising costs for items like food put pressure on household budgets and rising oil and power prices lifted costs for businesses.

The bank also announced measures to support exporters, such as increasing credit limits, underscoring the toll historically high rates are having on businesses for whom the prospect of higher borrowing costs could lead to holding off on investment.

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.

The current account deficit had contracted by 75pc to $2.15 billion in the six months ending December, according to the bank’s monetary policy statement. Foreign reserves had risen more than 60pc to $11.7 billion in the past six months.

Contrarily, some economists have raised concerns about this so-called ‘hot money’ as high interest rates draw foreign investment into short-term debt which could pose a risk if it is suddenly withdrawn.

Asian stocks rise as virus worries ease

Asian shares rose on Wednesday as better-than-expected Apple Inc earnings drove some regional tech gains although broader confidence was capped by worries about the economic impact of China’s virus outbreak.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.2%, ending four days of losses. Australian shares rose 0.41%, while Japan’s Nikkei stock index rose 0.27%.

While China’s flu-like illness, which has killed more than 100, continues to keep markets on edge, there were signs investors see the recent rout in asset prices as overdone.

Long-term U.S. Treasury yields traded above short-term yields and the Japanese yen nursed losses as investors pulled back from safe-havens in favour of more risky assets like equities.

Oil futures extended gains in Asia as pessimism about the virus eased somewhat and after OPEC sources said the cartel wants to extend crude output cuts by three months to June, easing concern about excess supplies.

Other investors say the growing number of travel restrictions within China and the cancellation of international flights could prevent a significant worsening of the virus.

“The rise in Treasury yields shows the risk-off trade is falling out of favour,” said Kiyoshi Ishigane, chief fund manager at Mitsubishi UFJ Kokusai Asset Management Co in Tokyo.

“This is supportive of Japanese stocks. You can buy Asian shares too, but I would not get too aggressive while Chinese markets are closed.”

U.S. stock futures fell 0.12% in Asia on Wednesday. The S&P 500 rose 1.01% on Tuesday, rebounding from its worst daily decline in four months on Monday, as shares of Apple Inc ahead of its fourth-quarter results.

After the market close, Apple reported better-than-expected profits for the fourth quarter and forecast revenue in the current quarter above Wall Street expectations.

The yield on benchmark 10-year Treasury notes rose to 1.6493% versus a yield of 1.5821% on three-month Treasury bills in another sign that sentiment has stabilised.

The yield curve briefly inverted on Tuesday when 10-year yields fell below their 3-month counterparts for the first time since October. An inverted yield curve has historically been an indicator of looming recession.

Markets in Asia could be subdued before the U.S. Federal Reserve meeting later on Wednesday. The Fed is expected to reiterate its desire to keep rates unchanged at least through this year.

In currency markets, the safe-haven yen was quoted at 109.13 per dollar following a 0.2% loss on Tuesday. The Swiss franc, another popular safe haven, traded at 0.9730 versus the dollar, close to its lowest in almost three weeks.

In the offshore market, the yuan rose for a second day to 6.9605 per dollar. China’s onshore markets are closed for the Lunar New Year holidays.

U.S. crude ticked up 0.47% to $53.73 a barrel in Asian trading.

OPEC wants to extend current oil output cuts until at least June from March, with the possibility of deeper reductions on the table if oil demand in China is significantly impacted by the spread of a new coronavirus, OPEC sources said.

Sterling edged lower to $1.3022, on course for its fifth day of declines due to worries about Britain’s trading relationship with the European Union.

Investors are also cautious ahead of a Bank of England policy decision on Thursday, which many analysts say is too close to call.

With input from Reuters