The Pakistan Stock Exchange saw its biggest intra-day fall in a year on Thursday morning after Pakistan confirmed its first case of coronavirus the day before.
The benchmark KSE-100 index, a gauge to measure market performance, shed 1,400 points or 3.5% within two hours of opening. It was the biggest single-day fall since February 27, 2019 (exactly one year ago) when the Pakistan Air Force had shot down an Indian fighter jet and captured its pilot Wing Commander Abhinandan Varthaman.
That day, the market had shed 1,500 points in the fear of an Indo-Pak war, but recovered almost entirely after Prime Minister Imran Khan announced that Pakistan would be returning the captured pilot in gesture of peace. Today was a different story as the market was still trading at 37,557 points, down 2% from its opening level, when this story went online.
Pakistan confirmed its first two cases of coronavirus on Wednesday evening, which caused panic among investors already concerned over reports of the deadly virus spreading to other countries.
Investors across the globe have resorted to selling following reports of rising number of cases of coronavirus and turned to safe havens, such as gold. Italy, France, Germany, Denmark, Brazil, Kuwait, Bahrain, the UAE, the US, Canada and Australia are some of the countries that have reported cases of coronavirus. But the worst hit are South Korea and Iran that have reported the most number of cases and deaths after China, the virus epicentre.
The spillover effects could be seen in markets across the globe as international oil prices fell and stock markets were down.
Most economies are integrated with China, which accounts for 17% of the global GDP. Following the outbreak of coronavirus, economic activities in the world’s largest manufacturing powerhouse have halted.
“We import a lot of raw material from China and the textile sector is one of the largest buyers. Since the activities have been disrupted, investors are worried,” says Adnan Sami Sheikh of Pak Kuwait Investment Company.
China accounts for 22% of Pakistan’s total imports and 7% of its total exports and forms nearly a quarter of our total international trade. The PSX has shed 6.6% or over $3 billion of its value since Friday.
The fallout of the coronavirus came at a time when investors were already concerned about the government’s poor performance on the Financial Action Task Force’s action plan to improve anti-money laundering and counter-terrorism financing regulations.
“The FATF used very strong words in its latest review, which is a cause of concern for investors,” Sheikh said.
“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 the 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. 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.