A weekly review: Stocks flat in thin trade over FATF, virus concerns

Yesterday, the Index closed at 40,249.22 points after losing 232.43 points (0.57 pc).

KARACHI (Dunya News) – The stock market kept struggling for its sustainability in the outgoing week as confusion and uncertainty surrounded potential investors until Friday when the FATF maintained Pakistan’s status in its grey list of countries with inadequate controls to restrict money laundering and terror financing. These concerns together with uncontrollable spread of coronavirus that has adversely affected the Asian economy, in particular, have restricted the stock market to grow.

Altogether, the Pakistan Stock Exchange’s (PSX) benchmark KSE 100-Share Index obtained only 5.96 points on a weekly basis as last Friday the Index closed at 40,243.26 as compared to yesterday’s 40,249.22.

But there were other persisting factors, including absence of positive triggers, the large suspension of imports from China, which had been hammering the stock market, and strife political disagreements between coalition parties in the government until some of them were settled in meetings with the ruling PTI.

Yesterday, the Index closed at 40,249.22 points after losing 232.43 points (0.57 pc). A total of 85,597,900 shares were traded compared to the trade 112,084,380 shares during the previous day, whereas the value of shares traded during the day stood at Rs3.579 billion as compared to Rs4.718 billion during last trading day.

On Thursday, the PSX registered bearish trend and closed at 40,481 points with the negative change of 92.87 points. A total of 83,552,650 shares were traded compared to the trade 109,559,610 shares during the previous day, whereas the value of shares traded during the day stood at Rs3.97 billion as compared to Rs5.78 billion during last trading day.

On Wednesday, the market closed at 40,574.52 after gathering 399 points. Wednesday’s rally came following confirmed reports from sources that Pakistan will not be put in the black list, but will remain in the grey list i.e. the country is given more time to implement effectively the global illicit financing watchdog’s 27 recommendations about the anti-money laundering and combating financing of terrorism (AML/CFT) mechanism.

On Monday, the PSX witnessed bullish trend and closed at 40,276.93 points after gaining only 33.67 points (0.08 %). A total of 99,965,470 shares were traded compared to the trade 117,597,500 shares during the previous day, whereas the value of shares traded during the day stood at Rs4.378 billion as compared to Rs3.772 billion during last trading day.

Since mid-January, investors have been adopting 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 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.

In the previous week, the IMF, in its concluding remarks affirmed that Pakistan had been successful in completing the "structural benchmarks" as well as in meeting "all end-December performance criteria" which had been set for the implementation of $6 billion Extended Fund Facility programme.

Coronavirus spread knocks stocks

The Japanese yen regained its footing on Friday after a bruising week, as the spread of coronavirus cases knocked down stocks and boosted demand for traditional safety plays from bonds to gold.

China reported more cases of the disease, with finance leaders from the Group of 20 major economies meeting in Saudi Arabia over the weekend set to discuss risks to the global economy stemming from the outbreak.

Though markets have largely shrugged off fears of long-term economic damage from the virus, a steady drip of new cases in countries beyond China - South Korea on Friday recording over 50 new cases - has kept worries gnawing away.

Among the winners on Friday were the yen, gold and government bonds.

The yen gained as much as 0.5% against the dollar in European trading, clawing back some ground after what had looked set to be its worst week in 2-1/2 years. It was last up 0.3% at 111.78. Other shelters also gained.

“It’s risk-off. Bonds are being bought again and hedges are being put into play at the moment,” said Olivier Marciot, an investment manager at Unigestion.

Yields on 30-year U.S. Treasuries fell below the psychologically important 2% level to the lowest since September 2019, while yields on 10-year notes fell to similar lows.

Ten-year German government bond yields fell to a four-month low, with the entire yield curve on the cusp of turning negative. The entire Dutch yield also returned to negative territory.

The moves came at the expense of stocks. Europe’s broad Euro STOXX 600 fell nearly half a percent at one stage and MSCI world equity index was 0.2% lower and set for its worst week in four.

Wall Street futures gauges slipped 0.25%.

“U.S. and EU equity markets have been sold across the board with core global yields benefiting from safe-haven flows,” said Rodrigo Catril, a senior FX strategist at NAB.

Not helping the nerves were signs that economies in Asia were feeling the fallout from the epidemic.

MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 1%.

In Japan, factory activity suffered its steepest contraction in seven years in the clearest evidence yet of the coronavirus’ damaging effects.

In a vignette of the impact in Asia, the International Air Transport Association estimated losses for the region’s airlines alone could near $28 billion this year - with most of that in China.

Still, European surveys painted a brighter economic picture, suggesting fallout further from Asia may be limited.

Business activity in the euro zone accelerated more than expected this month, with France’s service sector rebounding and German private sector growth also holding steady.

British businesses also grew at a solid clip in February, with factories posting the quickest rise in output for 10 months.

Gold surges 1.5% on growing coronavirus concerns

Gold jumped more than 1.5% on Friday to its highest level in seven years as investors rushed to the metal’s safety due to concerns over global economic fallout from the fast-spreading coronavirus.

Spot gold rose 1.7% to $1,646.89 per ounce by 01:46 p.m. EST (1846 GMT), after hitting its highest level since Feb. 13, 2013, at $1,648.75 earlier in the session. U.S. gold futures settled up 1.7% at $1,648.80.

Bullion has risen 4% so far this week, on track for its best week since late June.

“Markets are once again anxious because the coronavirus outbreak is possibly spreading outside China. There is huge amount of safe-haven demand as economic slowdown in China, Japan and Germany is expected to persist in the first half of the year,” said Edward Moya, a senior market analyst at broker OANDA.

Elsewhere, palladium fell 0.2% to $2,683.91 but was up about more than 10% this week. It hit a record high of $2,841.54 on Wednesday, fueled by a prolonged supply shortfall.

However, net-long positions in palladium have fallen to 6,062 contracts in the week to Feb. 11, their lowest mark since September 2018.

In terms of technicals, the market is overbought, indicating that “the trend is coming to an end,” so speculators are reducing their net-long positions on fears of a possible downward correction, said Peter Fertig, an analyst at Quantitative Commodity Research.

Silver was up rose 1.2% to $18.57 and was set to register its strongest week since end-August. Platinum fell 0.3% to $974.92.