KARACHI (Web Desk) – The Pakistan Stock Exchange nosedived for the second consecutive day on Tuesday as the KSE-100 Index suffered a 3.64 per cent, or 2,371.64 points, net loss, after selling pressure gripped the market amid the “anticipated year-end correction” and the factors related to the outcome of the upcoming general elections among other things.
Experts have been saying that this rush is a product of profit-taking as the market witnessed a record surge during the previous weeks after local investors decided to bank on stocks following a massive decrease in property prices – including both residential and commercial.
However, the scale of this slump is raising serious questions about the argument as the benchmark KSE-100 Index settled at 62,833.03 after a volatile session against the previous closing of 65,204.67, which follows a 1.40pc decline in the previous session.
At one point, the benchmark index, which had recently cross the 66,000 mark, was down as low as 62,360.78, or around 4.20pc.
With no economic activity in the country, some circles, on the other hand, are arguing that the market gains were a result of “overinvestment” thanks to the real estate slump, which has reached its peak.
At the same time, there are external factors too. One of them is the Middle East developments as shipping route passing through the Red Sea is under threat after the attacks carried out by the Yemen-based Houthis.
ARE INFLATION AND INTEREST RATES AT PLAY?
One of the important indications being missed is the fact that the stock market had stopped moving in upward trajectory after the State Bank of Pakistan (SBP) decided to maintain interest rates at 22pc – the highest level in Pakistan’s history.
Moreover, Monday also saw the SBP revealing a current account surplus which shows constantly improving macroeconomic indicators aren’t enough to satisfy investors.
The central bank’s decision came as Pakistan is again witnessing an alarming inflation rate – a scenario that will only worsen after the imminent gas price hike – and suggests that the monetary tightening will remain the rule..
With inflation not being controlled, it means there won’t be any rate cuts soon and this near future scenario is naturally damaging to the business sentiments, dashing the hopes of industrialists and other businessmen of economic revival through expansion in their activities.
Even Jerome Powell – the US Federal Reserve chief who is one of the main advocates of monetary tightening – has recently admitted that they would have to keep in mind the damaging effects of higher interest rates to the economy.