Stock market struggles as coronavirus outbreak hurt imports
In the early trading hours today, the Index lost 48 points.
KARACHI (Dunya News) – Not much progression could be seen at the stock market on Tuesday as potential investors continue to react to the impact of the coronavirus outbreak hurting imports, however, the benchmark KSE-100 Share Index recovered some 236 points or 0.60pc in the afternoon. The Index reached 39,532.91 as of 12.49pm.
In the early trading hours, the Index lost 48 points. The apex of the day remained 39,734.41 points while the lowest the stocks tumbled to so far today was 39,248.45. The Index opened at 39,408.62 today, and closed at 39,296.70 yesterday after losing 846.93 points, taking the market towards a two-month low.
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 shares rally as China factories struggle
Asian share markets followed Wall Street higher on Tuesday as China’s factories struggled to re-open after an extended break, though analysts warned investors might be underestimating how economically damaging the challenge was likely to be.
The death toll from the coronavirus epidemic in mainland China climbed past 1,000 on Tuesday, though the number of new confirmed cases fell.
Investors seemed to be hoping for the best and MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.9%, with Shanghai blue chips ahead by 0.8%.
Japan’s Nikkei was closed for a holiday, although Nikkei futures traded 0.8% firmer. Futures for the EUROSTOXX 50 rose 0.7% and the FTSE 0.5%.
E-Mini futures for the S&P 500 added 0.3%, after a late jump on Monday took Wall Street to record highs. The Dow ended up 0.6%, while the S&P 500 gained 0.73% and the Nasdaq 1.13%.
The gains came even as the World Health Organization (WHO) warned the spread of the virus among people who had not been to China could be “the spark that becomes a bigger fire”.
In China, factories were slow in reopening after an extended Lunar New Year break, leading analysts at JPMorgan to again downgrade forecasts for growth this quarter.
“The coronavirus outbreak completely changed the dynamics of the Chinese economy,” they said in a note.
They assumed the contagion would peak in March and factories would slowly resume opening this month. In this case, growth would brake sharply to around a 1% annualised pace in the first quarter, before rebounding to 9.3% in the second.
Should the contagion not peak until April, the economy could contract in the first quarter, with a rebound spread over the second and third quarters, the JPMorgan analysts said.
UNDERESTIMATING THE DAMAGE
Analysts at Nomura said measures of returning workers and passenger traffic flows within China suggested the virus had “a devastating impact on China’s economy in January and February.” “We are concerned that global markets thus far appear to be significantly underestimating the extent of disruption inflicted by the virus,” they wrote in a note.
The risks are such that investors are wagering on more stimulus from Beijing — even though conventional measures in such cases can do little to reverse a sharp slump in demand — while a host of other central banks are under pressure to safeguard their economies with cheaper loans.
Markets are pricing in almost 40 basis points of easing this year from the Federal Reserve and again slightly inverted the Treasury yield curve to reflect the danger of recession.
Fed Chair Jerome Powell appears before Congress on Tuesday to begin two days of testimony and is expected to reiterate that the U.S. economy is doing well but that rates can stay low given subdued inflation.
The relative outperformance of the U.S. economy is keeping the dollar well supported, with the euro slipping to a four-month low at $1.0906. The British pound was last at $1.2913 having touched a two-month trough of $1.2870.
Against a basket of currencies, the dollar was again at its highest since mid-October at 98.858.
The dollar was steadier on the Japanese yen, which benefits from being a safe haven of its own, and last stood at 109.81.
Risk aversion initially helped lift gold to its highest for a week, only for the strength of the dollar to pull it back 0.25% to $1,568.61 per ounce.
Oil prices bounced a little after weeks of selling, as traders waited to see how demand in China might fare and whether OPEC could agree to trim supplies.
Brent crude futures firmed 64 cents to $53.91 a barrel, while U.S. crude rose 50 cents to $50.07.
