Another unhappy week for stocks

KARACHI: The Pakistan stock market saw another week of rout as the coronavirus pandemic continued to rock the global financial industry. The KSE-100 index slumped by 2,558 points (8.3 per cent) and closed at 28,109 in the four-session week, cut short by national holiday on Monday.

Positive contribution in the last two days of trading lifted the index out of its six-year low of 27,229. It also managed to snap the trading halts that were as many as eight in the two weeks since the new market suspension rules came into force.

The SBP Monetary Policy Committee announced another 150bps cut in the interest rate which came a week after a 75bps slash, which together brought the key rate down to 11pc.

This significant reduction in policy rate took its toll on the local currency as the rupee lost ground against the dollar. The SBP and Pakistan Bankers’ Association announced new measures to give relief to borrowers and relax rules on mark-up. In order to create additional liquidity for banks, the SBP reduced the Capital Conservation Buffer (CCB) from 2.5pc to 1.5pc and should enable banks to lend up to Rs800bn, or 10pc of outstanding loans.

Meanwhile, the government announced a substantial support package of over Rs1.17 trillion to keep the economy afloat. Major takeaways from it were the reduction in petroleum prices by Rs15/litre (aggregating to Rs75bn). It also unveiled Rs100bn of tax refunds to exporters.

Foreign selling continued, clocking in at $13.7 million compared to net sale of $19.6m the preceding week. This was witnessed in commercial banks at $5.3m and exploration and production $3.5m. On the domestic front, major buying was reported by individuals at $6.2m and insurance companies $5m. Market participation decreased where average volume declined 22pc to 186m while mean traded value fell 33pc to $37m.

Sector-wise negative contributions came from commercial banks, lower by 878 points, oil and gas exploration companies 344 points and fertiliser 316p points. Among scrips, declines were made by Habib Bank, down 314 points, Engro Corporation 182 points, and Oil and Gas Development Company 146 points.

In other major news: companies shut plants amid lockdowns ostensibly to comply with government regulations, SBP foreign exchange reserves deteriorated by $690m to $11.9bn, levels last seen in January. During the week, the rupee depreciated against the dollar to record low before recovering to close at 165.54.

Going forward, regardless of the deep discounts in equity values, investors would scarcely opt for investment in shares given that there is no downside to the market until positive news of the arrest of pandemic surfaces.

The incessant foreign selling was also a major deterrent to the market recovery. But since foreign funds are in the process of exit from all regional bourses, no one expects a plug in the outflow.

Meanwhile, the recent underperformance by the benchmark index had already incorporated potential macroeconomic weaknesses. However, research strategists said that a sustainable rally in the medium term would allude investors and the market may remain hostage to a jittery trend.