High inflation, global coronavirus scares affecting market
The Pakistan Stock Exchange lost over 1,000 points as of mid-day on Monday with the KSE-100 benchmark sending most stocks in the red zone as skyrocketing commodity prices erode profits.
Experts attribute the losses to higher than expected inflation rates. Some analysts also see the aftermath of the coronavirus playing a part in bringing the index down.
“Hopes are down, the market is shedding everything,” said Adnan Sami of Pak-Kuwait Investment. “With an inflation rate this high, I doubt markets will produce any good now, at least not any time soon,” he added without specifying the period. “It’s a no-brainer.”
The market was floating at around the 40,604-point level at midday, a slight year-to-date decrease as 2020 began considerably above 41,000. This was a drastic change from January 10, which saw a 17-month high at 43,207.
The most active companies, such as the Bank of Punjab and HASCOL lost 2.58% and 2.1% respectively.
“Poor market performance, for the most part, can be attributed to inflation,” said equity analyst Raza Jafri of Intermarket. He added that the 14.6% inflation rate, the highest in almost a decade, was not expected, and coupled with no revision in monetary policy [13.25%], investors are resorting to profit taking.
Profit taking is when investors take their investments out after making profits on the stocks. This usually means the market will lose both volume and value until the investment returns.
Jafri said that global markets have an impact on local markets too. “With global issues such as the coronavirus affecting markets, the slump usually translates to local equity and this cannot be ruled out.”
Experts are expecting a further increase in inflation as gas and sugar prices have yet to be adjusted in the basket of goods and services that the Pakistan Bureau of Statistics uses to trace prices across the country. Sharoon, another equity analyst, said, “The market performance, after a bullish rally since mid-August, is seemingly in the correction phase.”