The Pakistan Stock Exchange benchmark KSE-100 index fell to its lowest level in three months at noon on Wednesday, wiping out $2 billion (Rs300 billion) worth of shareholders’ equity in just three days.
Panicked over fresh reports of coronavirus’s spread into other countries, investors resorted to selling, which dragged the KSE-100 index, a gauge to measure market performance, down 1.8% before noon. It was hovering at 38,250 points, a level last seen in November 2019.
After fresh reports of rising global cases of coronavirus hit the markets on Monday, investors panicked and turned to safer havens, such as gold. The spillover effects could be seen in markets across the globe. International oil prices fell by $10 a barrel on the back of a suppressed demand as tourism industry came to a halt. Milan’s main index was down 4% after Italy witnessed Europe’s worst outbreak of the deadly virus. Pakistan’s stock market was down 2.8%.
The negative news continued to dominate investors’ sentiment this week. Dow Jones Industrial Average index, which tracks performance of 30 large companies listed in stock markets across the United States, was down 3% on Wednesday, taking the three-day fall to 7%.
The PSX has shed 5% of its value since Friday over similar concerns, but market analysts say the timing of the coronavirus fallout, which has caused global uncertainty, couldn’t be worse.
This happened when investors were already concerned about the government’s poor performance on Financial Action Task Force’s action plan to improve anti-money laundering and countering terrorism financing regulations.
“The FATF used very strong words in its latest review, which is a cause of concern for investors,” says Adnan Sami Sheikh of Pak Kuwait Investment Company.
“The FATF strongly urges Pakistan to swiftly complete its full action plan by June 2020,” the global watchdog for illicit financial activities said in its report last week, warning the country it will take action in case of a compliance failure.
What further dented investors’ sentiment was the government’s decision to defer an increase in prices of electricity and gas, Sheikh said. The government is deviating from the IMF’s programme by delaying a hike in electricity tariffs amidst a double digit inflation rate. Inflation for January was 14.6%, its highest level in nine years.
Owing to a higher inflation rate, the central bank kept its monetary policy rate unchanged at 13.25%, which has been attracting investors towards the government’s treasury bills. Foreign investment in Pakistan’s local debt market has already surpassed $3 billion since July 2019.
Since the central bank is offering over 13% return on these short-term securities, investors are moving away from risk-prone stock market to the less risky debt market.
The analysts SAMAA Digital spoke to say the market has entered a correction phase and is likely to remain range bound in near term. Most global economies are integrated with China, which accounts for 17% of the global GDP, but economic activities in the world’s largest manufacturing powerhouse have halted. It will take about four to six months before a vaccine can be developed to deal with coronavirus and until then, uncertainty will persist, analysts say.