Stock market drops more 400 points as virus continues to demotivate investors
Experts opined that global fund managers have been selling off equities across Southeast Asia.
KARACHI (Dunya News) – Panic and uncertainty continues to demotivate potential investors on Tuesday at the Pakistan Stock Exchange (PSX) as the benchmark KSE-100 Share Index further lost 421.68 points or 1.08pc in the early trading hours and reached 38,722.05 (below 39,000). As of 11.34am, the apex of the day remained 39,247.75 whereas 38,693.02, the lowest so far.
The latest bearish trend in the stock market followed reports that Pakistan has kept sealed its borders with Iran for the third day after it was plagued by several cases of deadly COVID-19 (coronavirus).
Yesterday, the KSE-100 Index closed below the 40,000 support level for the second time in the current year at 39,143.73. It opened at 39,039.03 today.
On Monday, a massive sum of Rs175 billion was wiped off the market capitalisation in a single day, and the foreigners sold shares worth $3 million.
Experts opined that global fund managers have been selling off equities across Southeast Asia, and so Pakistan has been also taking an impact. Stock markets across Asia, including Japan, Singapore, Korea, Thailand, Jakarta and India, also saw a sharp plunge.
Meanwhile, investors dumped stocks and ran to seek the shelter of safe havens where gold hit its all-time high price, in concert with the hefty rise in value of the yellow metal in world markets.
In the previous week of Pakistan, the market struggled for its sustainability 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.
Among other persisting factors were 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.
On a positive note, investors were relieved as the prime minister announced no change in gas and electricity prices until at least the next budget against rumours of an earlier increase. Moreover, the foreign exchange reserves continued to rise for the 20th week, crossing the $12.5bn mark.
Further, the approval of IMF’s third tranche and ban imposition by the government on export of essential food items so as to control rising inflation along with deferment of hikes in utility rates till Jun 2020 is also expected to impact the market trend.
Investors may also be encouraged by the improvement in macroeconomic indicators such as the current account deficit shrinking by 72pc in 7MFY20. The market may also take cue from the developments such as the planned visit of China’s president to Pakistan and the conclusion of the US-Taliban peace talks.
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.
A curve representing the drop at the Pakistan Stock Exchange in one month
World stocks tumble, oil falls, gold spikes
Stocks across the globe fell by the most since mid-2016 on Monday and oil prices tumbled as a jump in coronavirus cases outside of China drove investors to the perceived safety of gold and government bonds on fears of the impact on the global economy.
Spot gold prices rose for a fifth straight session and touched a 7-year high while the U.S. 30-year Treasury bond yield set a record low. MSCI’s global gauge of stocks fell 3% and the three major U.S. indexes also fell more than 3%.
Despite the spike in coronavirus cases reported in Italy, South Korea and Iran, the head of the World Health Organization said that “using the word ‘pandemic’ now does not fit the facts but may certainly cause fear.
“We must focus on containment while preparing for a potential pandemic,” Tedros Adhanom Ghebreyesus told reporters in Geneva, adding that the world was not witnessing an uncontained spread or large-scale deaths.
Concerns over the hit to economic growth and uncertainty over the stress to supply chains triggered selling in stocks and other high-risk assets.
“It is not as though the numbers have changed dramatically; but what has changed is the geography, which adds a new level of concern,” said Art Hogan, chief market strategist at National Securities in New York.
“What the market is trying to predict here is ‘How large will this get globally, and when will it start to peak?’”
The Dow Jones Industrial Average fell 1,031.61 points, or 3.56%, to 27,960.8, the S&P 500 lost 111.86 points, or 3.35%, to 3,225.89 and the Nasdaq Composite dropped 355.31 points, or 3.71%, to 9,221.28.
The pan-European FTS Eurofirst 300 index lost 3.76% with Milan’s stock market down more than 5% after a spike in cases of the virus left six dead in Italy and parts of the country’s industrial north in virtual lockdown.
MSCI’s gauge of stocks across the globe shed 2.97%, its biggest single-day decline since June 24, 2016.
Emerging market stocks lost 2.67%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 2.52% lower, while futures in Japan’s Nikkei fell over 4%.
The virus has now killed more than 2,500 people in China, which has reported some 77,000 cases, and spread to 29 other countries and territories, with a death toll of more than two dozen outside of China, according to a Reuters tally.
Iran, which announced its first infections last week, said it had confirmed 61 cases and 12 deaths, with most cases in the holy city of Qom. Kuwait, Bahrain, Oman, Afghanistan and Iraq reported their first new coronavirus cases, all in people who had been to Iran.
“The idea that the coronavirus has been fully contained has been firmly banished,” said Chris Beauchamp, chief market analyst at IG. “This means the economic forecasts of the impact, such as they are, will need to be revised, with a greater impact now to be expected.”
SURGE TO SAFETY
Benchmark 10-year notes last rose 29/32 in price to yield 1.3738%, from 1.47% late on Friday. The 30-year bond touched a record low yield of 1.811.
In currency markets the Japanese yen strengthened 0.77% to 110.74 per dollar. The dollar index fell 0.13%, with the euro up 0.08% to $1.0852.
“Ultimately this is all a risk-off trade,” said Marvin Loh, senior global markets strategist at State Street Global Markets.
“When you look at the yen, when you look at the Swissie, when you look at rates, it is risk-off. It’s probably reflective, to a certain degree, of the market being a little too sanguine up until now ... so there’s an adjustment process around it.”
Korea’s won was down 1% and emerging-market currencies, from Mexico’s peso and Turkey’s lira to Poland’s zloty and Russia’s ruble, were all in the red.
Oil pared some of its early losses. U.S. crude fell 3.8% to $51.35 per barrel and Brent was last at $56.18, down 3.97% on the day. Both had fallen more than 5% during Monday’s session.
Among the main industrial metals, copper lost 1.33 percent to $5,688.50 a tonne.
“As the virus spreads globally, additional downside revisions in oil demand for this year may be required,” Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.
“The accelerated sell-off in the stock market has become difficult for the oil market to ignore,” he said.
Yields on top-rated, tax-exempt U.S. municipal bonds fell to all-time lows of 1.01% in 10-year paper and 1.6% in 30-year debt, according to Municipal Market Data.
