KARACHI: Panic-selling was witnessed on Monday at the Pakistan Stock Exchange (PSX) where the KSE-100 Index tanked 1,105.49 points (2.75 per cent) and closed below the 40,000 support level for the second time in the current year at 39,143.73.

A massive sum of Rs175 billion was wiped off the market capitalisation in a single day. The investors were seized with fear after morning papers disclosed that Pakistan had temporarily sealed its borders with Iran after it was plagued by a large number of cases of deadly coronavirus.

The PSX tracked the equity markets across the world which were reeling from the fear of a deeper than expected hit on the global trade and economics as novel coronavirus could lead to a massive slowdown in global growth. Stock markets across Asia, including Japan, Singapore, Korea, Thailand, Jakarta and India, also saw a sharp plunge.

But PSX Chairman Suleiman Mehdi had calming words to offer. He said the PSX had overreacted and Monday’s response seemed to be a knee-jerk reaction. “Global fund managers were selling off equities across Southeast Asia and Pakistan was also taking an impact,” he added.

On Monday, the foreigners sold shares worth $3 million at the PSX. But Mr Mehdi pointed out that on the other hand foreign investment in debt securities (Pakistan Investment Bonds and Treasury Bills) had scaled to $3.26 billion since July 2019 as overseas investors switched from equity to debt securities that offered higher yields.

The PSX chairman said that in the heat of the moment, the investors had ignored some positive news such as the FATF deferring its decision to June to let Pakistan comply with the remaining requirements and get off the grey list.

Former PSX chairman Arif Habib reckoned that the market could rebound as the economic indicators were showing signs of improvement. “Inflation has peaked and there could be a downward movement from March,” he asserted.

Mr Habib also pointed to the market valuations which were at attractive levels. He thought that the corporate profitability in the major heavyweight index sectors, such as exploration and production, banking, fertiliser and power, could post healthy financial results, which would offer further confidence to the investors.

But he did caution that the market recovery was subject to the global trend and the coronavirus impact on the global economy, which would inevitably be seen in the home market as well. “Some investors may think it prudent to exit stocks at the moment and return when the dust has settled,” he said.

A stock strategist commented: “Foreign investors have largely been sellers during the past couple of sessions due to possible de-tracking and reversal of rupee appreciation that the currency has realised so far since last quarter.” He said that as inflation was expected to recede, it could help monetary easing earlier than expected.

JS Global Capital chief executive officer Kamran Nasir was of the opinion that the local market might cool down after having taken an initial sharp negative reaction that stoked fears of the spread of the deadly coronavirus from the neighbouring countries.

He observed that the PSX, which had already rallied by 50pc since August last year, was witnessing a cooling off period. Will the investors’ fear seen on Monday subside? Mr Nasir suggested a “wait and watch” strategy.

On Monday, the PSX 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.

On the domestic front, a decline in international oil prices could not put a floor under the market fall as the investors were concerned over other issues such as the pending IMF executive board’s decision on release of $452m third tranche to Pakistan. The reports relating to an upward revision in fiscal deficit targets and the increasing trend in prices of fruit basket also weighed on the investors’ sentiments.

On the market-related side, the onset of ‘rollover’ week for the futures contract from Monday kept investors on their toes.

Stocks fell across the board, with sectors such as exploration and production, refineries, oil marketing companies, cement, steel and banking taking a major battering. Shares that took a major dip included PPL (-4.6pc), HBL (-2.9pc), HUBC (-3.2pc), UBL (-3.6pc), OGDC (-3.2pc), Engro (-2.3pc), MCB (-2.3pc) and Lucky Cement (-2.7pc), which cumulatively contributed 491 points towards the index downside. Traded value on Monday rose 54pc over the previous session to $36m, while traded volume surged 69pc to 144m shares.

Published in Dawn, February 25th, 2020