The benchmark KSE-100 Share Index fell more than 600 points in the early trading hours on Monday with the intraday low of 39,465.51 before recovering some points, marking a two-month low.
The Index opened at 40,150.34, whereas it closed at 40,143.63 on Friday. At 11.09 am, the Index stood at 39,554.95, down 588.68 or 1.47pc as confusion and uncertainty surround potential investors due to several persisting factors.
Earlier in the day, the country became awash with rumors that the finance minister Hafiz Sheikh and Reza Baqir, State bank governor were to be replaced. The potential name of Shahid Kardar was also being floated. Journalists like Talat Hussain ascribed the fall in the index due to possible replacement of the aforementioned.
Stock market witnesses massive foreign selling amidst rumours that Hafiz Shaikh and Raza Baqir may be replaced. Govt incapable of handling the situation. This has to be the world’s most expensive circus featuring the priciest clowns any nation can hire to its detriment.
— Syed Talat Hussain (@TalatHussain12) February 10, 2020
“I don’t believe this to be a fair concern and more of targeted rumor generation to create panic and instability,” said Naveed Vakil, the Chief Operating Officer at the AKD Securities. Both rumors were denied by the government firmly later in the day.
He went on to say that “market is in the near term weak due to the inflation outlook as well as the stringent broker regime that is to be implemented. This will lead to stronger financial institutions as brokers but risks consolidation in the short term.”
The stock market in the previous week followed a 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 capitalization 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.
While explaining the stringent broker regime, Vakil said that SECP is implementing a tier system for brokers dividing it into either trading only and trading plus. He said brokers’ will fall into different categories depending on how much capital they have.
“I don’t believe this to be a fair concern and more of targeted rumor generation to create panic and instability,” he said.
Brokers with low capital will only be allowed to trade but not be able to clear trades as well as restricted from holding client securities custody.
To the question, if foreign selling was happening, he replied in affirmative, adding foreign selling was happening but this was also part of the larger downtrend in emerging and frontier markets plus global concerns for coronavirus along with no near-term catalyst for Pakistan.
Investors adopted extremely cautious behavior after more headlines covered mounting deaths due to coronavirus, 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, uncertainty over 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 the coalition partners of the government also kept investors away from the market.
Moreover, the outcome of the 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 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. However, Naveed Vakil points out that despite recent selling global allocators are taking a closer look at Pakistan and if the government is able to present an investment case we could see targeted inflows into the country in the next few months.