KARACHI: The financial markets in Pakistan on Friday went into turmoil on the shocked decision of Britons to quit the European Union.

“Brexit was not a topic of conversation at the capital market until yesterday as the odds were tilted heavily towards Britain sticking with the EU,” said a leading stockbroker at the PSX.

But the unexpected happened and investors began to jump out of stocks into safe havens such as gold early Friday. As the wave of panic-selling swept through the stock market, the small investors who had not even heard of “Brexit”, decided to sell first and ask questions later.

Stocks plunged as investors aggressively liquidated their positions following the Britain’s exit from the European Union. The KSE-100 index declined 848.01 points (2.22pc) to close at 37,389.88. Earlier, the index touched an intraday low of 36,826 in line with meltdown in other global markets. However, as sanity returned, the stocks recovered nearly 560 points.Volume jumped to 237m shares from 114m shares a day earlier while trading value rose to Rs15.3bn, from Rs6.6bn. Volume leaders were again small and mid-tier stocks that included the usual K-Electric and Dewan Cement.

“The panic in PSX is unjustifiable as Brexit does not change the Pakistan success story with MSCI Emerging Market re-rating still to take place and CPEC theme intact,” Nasim Beg, Vice-Chairman MCB-Arif Habib Savings, asserted. He offered comforting words saying that the dust should settle down in a few days.

He did not think Brexit could induce risk averse behaviour by global equity managers that could lead to heavy exodus of foreign portfolio investment while anticipatory buying a year ahead of Pakistan’s formal entry in MSCI EM remained a possibility.

Oil sector once again came under pressure as international oil prices lost more than 4pc value on Friday.

But market strategists could scarcely convince anyone of complete immunity of Pakistan from global turmoil. Already mid-day Friday oil prices were down 4pc with WTI trading at $47. “This has led to weakness in local oil E&P companies,” said analysts at Topline Securities.

Moreover, foreigners sold stocks worth $4.82m on Friday, taking the weekly sales to $21m. Interesting pattern was seen in the behaviour of local participants where individuals continued to accumulate stocks worth $17.57m on Friday, while mutual funds, possibly capital protected funds decided to take profit with sale of shares valued at $24.03m.

Ahmed Saeed Khan at JS stated that the biggest index movers on Friday were OGDC down 4.32pc, PPL 3.73pc and MCB 3.95pc.

Also as yen appreciated by 3pc, it signalled hit on earnings for local auto sector as portion of their costs were denominated in the Japanese currency. “Textile sector would also be affected, as a weaker pound sterling and euro, down 2.3pc on Friday mid-day would render Pakistan’s exports more expensive”.

Out of total textile exports during July-May 2015-16 of $11.6bn, exports to UK amounted to $1.2bn (10pc). However, analysts at KASB Securities assured: “The impact of dual move in currency and commodity on fundamentals and corporate earnings is limited”. With his gaze fixed on the positive side, one market watcher thought that the country would save $1.1bn in oil imports in case crude costs $5 a barrel lower than average estimated $46 a barrel for FY17.

Published in Dawn, June 25th, 2016