Virus, uncertainty continues to stymie stock rally

In the early trading hours today, the Index lost 98 points before recovering.

KARACHI (Dunya News) – Not much progression could be seen at the stock market on Thursday as potential investors continue to react to the impact of the coronavirus outbreak hurting imports, however, the benchmark KSE-100 Share Index recovered some 126.54 points or 0.31pc as of 11.04am. The Index reached 40,657.67.

In the early trading hours, the Index lost 98 points. The apex of the day remained 40,787.09 points while the lowest the stocks tumbled to so far today was 40,433.05. The Index opened at 40,629 today, and closed at 40,531.13 yesterday.

As confusion and uncertainty surrounds potential investors due to several persisting factors, the stock market in the previous week followed similar trend and lost massive 1,487 points or 3.6pc, representing the highest weekly decline in recent months during which the market regained much stability, and dropped to 40,143.63 at close on Friday.

A staggering sum of Rs276 billion was wiped off the market capitalisation at the Pakistan Stock Exchange (PSX) in five-day trading sessions of the last week. Foreign investors were net sellers in the equity market, offloading $4.1 million worth of shares.

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.

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.

They were also spooked by uncertainty over the decision by the Financial Action Task Force (FATF) on Pakistan status to be decided later this month and the country’s ability to pull itself out of the grey list. Investors were also rattled over the inflation figures for January which came out at an alarming 12-year high of 14.6pc.

Importantly, the investors have also strongly noticed shortfall in revenue collection by about Rs350 billion as review talks with the International Monetary Fund (IMF) have begun for the release of its third tranche under the $6 billion facility.

On political front, unsettled political wrangling among the coalition partners of the government also hit confidence of the investors.

Every year the Chinese New Year celebrations bring supply chains to a halt as factories in China shut down and workers head home for the holidays. This year, however, the outbreak of the 2019 Novel Coronavirus during these holidays has disrupted movements, with the Chinese authorities extending the shutdown to Feb 12 in most provinces.

Some traders and businessmen in Pakistan said that loading of goods in China has come to a halt. Most industries that depend on raw materials imported from China usually build stocks to last them through the holiday closure, but in some cases at least those stocks are now running low and businesses are left wondering when normal imports might resume.

Asian stock markets wobble

Asian stock markets wobbled on Thursday while safe-havens such as the yen, gold and bonds rose as the number of new coronavirus cases and deaths in the outbreak’s epicenter jumped.

China’s Hubei province, where the virus is believed to have originated, reported 242 new deaths, double the previous day’s toll, and confirmed 14,840 new cases on Feb. 12.

The rise in the number of cases, which came as officials adopted a new methodology for counting infections, is a sevenfold increase from a day earlier.

It was not immediately clear how the new methods affected the results, nor why the death toll rose so sharply, but it seemed to dash hopes that the virus’ spread might be slowing.

E-mini S&P 500 futures turned from positive to fall 0.3% ESc1. Dow Jones futures fell by the same margin YMc1, suggesting a pause in Wall Street’s strong rally.

Ten-year U.S. Treasuries fell about 3 basis points to 1.607% US10YT=RR, the yen strengthened past 110 per dollar and a rally in Asian currencies against the dollar halted.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was steady in morning trade but the news knocked the week’s momentum from stock markets.

“The slowdown (in cases) was the key driver of the rally in growth-exposed assets,” said Michael McCarthy, chief strategist at CMC Markets in Sydney.

“A lot of people leapt to the conclusion that we might have seen a peak...the reversal of what appeared to be good news is enough to have people scrambling for the exits.”

Japan’s Nikkei was flat while Australia’s ASX/S&P 200 index retreated from a record high. The Shanghai Composite and Hong Kong’s Hang Seng wavered either side of unchanged.

Gold rose 0.3% XAU= to $1570.12 per ounce.

MORE FORECASTS CUT

Overnight, markets had taken comfort from the World Health Organisation’s (WHO) emergency program head describing the apparent slowdown in the epidemic’s spread as “very reassuring.”

Yet WHO chief Tedros Adhanom Ghebreyesus had also warned that it should be viewed with extreme caution. “This outbreak could still go in any direction,” he said.

More than 1,300 people have died from the epidemic in China and the total number of cases in Hubei province now stands at 48,206.

Even before the rise in cases, economists were turning more bearish on the likely hit to China’s growth as factories idle and supply chains are upended.

Citi on Wednesday again downgraded its 2020 GDP forecast for China to 5.3%. The bank had forecast it to be 5.8% in its January outlook, before cutting it to 5.5% two weeks ago.

Morgan Stanley believes a gradual, rather than sharp recovery is the most likely scenario. That all bodes ill for regional economies and has weighed on Asian currencies and commodities.

China’s yuan was 0.1% weaker. Rallying oil prices paused, with Brent crude LCOc1 up 15 cents to $55.94 per barrel, 15% below where it was before the coronavirus outbreak.