Bloodbath as Karachi stock market makes largest single-day drop in 14 months

October 8, 2018

The capital market nosedived to a 10-month low as political and economic uncertainty drove investor sentiment, leading to panic selling, which wiped out Rs272 billion from the market on Monday.

The benchmark KSE-100 Share index plunged 3.4% to below 38,000 points after shedding more than 1,300 points by 2:30pm. This was the largest single-day fall in the last 14 months, dragging the index down to its lowest level in 10 months. The last time market saw such a steep fall was in August 2017.

Analysts say the government’s inability to take key economic decisions, such as deciding on the IMF bailout and political tensions were the main reasons. First the government delayed the IMF program and then the opposition leader was arrested.

The KSE-100 index, the gauge of the market’s performance, had already lost 4.3% at the end of the previous week, losing 861 points during Friday’s session alone as news of Shehbaz Sharif’s arrest by NAB reached. Monday was the sixth straight session the market ended in the red zone.

In the last two weeks, foreign investors sold shares worth $17.8 million and by Monday noon, another Rs110 billion were wiped out from the market. The KSE-100 settled at 37,898 points when the market closed with Rs272 billion shaved off of Friday’s value. The last time market traded at this level was in December 2017.

Larger impact

Pakistan’s dollar reserves fell by another $600 million last week to come to a critical level ($8.4 billion), that barely covers two months of imports. The government has, however, been delaying an IMF loan, which has become unavoidable. The government needs to shore up the dollar reserves to pay for imports that keep the economy afloat and pay its foreign loans to avoid default.

Analysts say investors are uncertain about the implications of the government’s on-going drive against corruption, which has now led to the arrest of the leader of the opposition. Today, it is politicians tomorrow, it could be business people, the same people who invest in the market, analysts say. This has caused panic.

Last week, the PTI government started its drive against tax evaders, issuing notices to more than 160 people suspected of evasion. The government says the number of suspects runs into the thousands and all of them will be targeted through sophisticated technology by using bank data of non-filers who have huge sums in their accounts.

Analysts say the government is, perhaps, waiting for the by-elections (to be held later this month) before it decides on the IMF program. Besides this, there are fears that the rupee will depreciate further, which kept investors away from the market. They say that once the uncertainly is over and the government’s policies are clear, the index will bounce back quickly.