A weekly review: PSX stock rally faces major test as coronavirus spreads

Foreigners sold stocks worth $8 million compared to a net buy of $4.8 million the week before.

KARACHI (Dunya News) – The stock market in the outgoing week lost massive 1,002 points (2.4 percent) and even could not sustain the 42,000-level, and dropped to 41,631 points as investors adopted extremely cautious behaviour after more headlines cover mounting deaths due to coronavirus taking full hold, a plunge in global crude oil prices, unchanged main policy rate by the State Bank of Pakistan at 13.25 percent for the next two months, uncertain FATF’s decision and political uncertainty in the country.

Over the trading sessions, the benchmark KSE-100 share Index observed massive fluctuations in intra-day highs and lows, but closed in negative territories.

Average daily traded volume lost 1pc to 188 million shares while mean value traded receded 7 percent to $46 million. Foreigners sold stocks worth $8 million compared to a net buy of $4.8 million the week before.

The SBP in the latest monetary policy statement kept the interest rate unaltered and pushed selling in the leveraged sectors such as cement and steel. Concerns over higher than expected reading of inflationary pressures and political uncertainty sparked by coalition partners of the government also kept investors away from the market.

Moreover, the outcome of Financial Action Task Force in the upcoming review remained unclear. Several reports claimed that the substantial progress was made to pull the country out of the grey list, but Minister for Economic Affairs Hammad Azhar noted it was premature to speculate on any outcome.

The overall trading environment is expected to be further marred as the International Monetary Fund (IMF) is due to start quarterly talks with Pakistan next week, but the tax collection by the Federal Bureau of Revenue (FBR) recorded huge shortfall.

On Friday, the PSX lost 272.57 points and a total of 193,866,160 shares were traded with the value of shares traded during the day at Rs7.912 billion.

On Wednesday, the market dropped 400.49 points and closed at 41,898.70 points. A total of 197,137,000 shares were traded valuing Rs7.4 billion

On Tuesday, 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.

On Monday, the stock market closed at 42,539.23 points after losing 93.79 points. A total of 198,479,790 shares were traded, and the value of shares traded during the day stood at Rs6.566 billion.

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 FATF  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.