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Three market halts during the week as coronavirus triggers panic selling costs kse-100 5.6pc
Summary

Market halt procedure has been introduced by the Securities and Exchange Commission of Pakistan (SECP) in Pakistan Stock Exchange (PSX) regulations in December 2019. The action triggers when the KSE-30 index moves 4 percent either way and remains there for 5 consecutive minutes. During the halt, trading in all securities remains temporarily suspended in order to ensure a cooling off period and run a mark to market activity as a risk management measure.

The three halts of 45 minutes occurred in PSX on Monday, Thursday and Friday. The mechanism has been devised to provide opportunity for brokers to collect mark-to-market margin as a tool for risk management.

PSX remains at the forefront of the capital market to provide a fair, transparent and efficient market place for the benefits of investors, issuers and all stakeholders.

The global event and news that led was coronavirus fears, oil plunge pummel stocks. Brent crude slid eight per cent on Thursday after US President Donald Trump restricted travel from Europe among measures to halt the spread of coronavirus after World Health Organization described the outbreak as a pandemic.

The weekly volume surged by 10 percent to Av.264 million. The market capitalization dropped by Rs.300 billion to Rs.6,796 trillion. The foreigners were seller $34.24m while they were absorbed by Insurance Co. $25.14m and Individuals $10.92m.

PSX saw the biggest single day decline in 10 years on Monday. The KSE-100 Index highest touched 38,219.67 and low of 35,014,63, a fall of 2,305.64 points. The volume surged by 26 per cent compared to last Friday. The decline at the PSX was in line with the meltdown in global markets where equities from Wall Street to the Middle east and Asia saw heavy bleeding on fears of a greater than expected slowdown in world economies. It provided for the first time PSX to test its Market Halt experience of the procedure. The Index closed at 37,058.95.

KSE-100 Index recovers 636 points on Tuesday as the optimistic investors counted the blessing of oil prices to the economy of Pakistan. The Index closed at 37,695.75.

The swinging movement of the PSX index for the last two days normalized on Wednesday and the market closed by drifting 22.50 points to close at 37,673.25 points.

The development of heightened news on coronavirus on Thursday caused panic-selling at Pakistan Stock Exchange. Prime Minister Imran Khan calls NSC to discuss anti-virus strategy.US stops flights from Europe. Saudi Arabia expands travel restrictions. KSE-100 Index opened in the red and could not come out for the entire session. Trading was suspended for 45 minutes at around 2.13pm when the KSE-30 index tanked 708 points and stood at 16,221.

The KSE-100 Index closed at 35,956.69 shedding 1,716.56 points. The trading on Friday halted for the third day. It opened in deep red and sent both the KSE-100 and KSE-30 indices spiraling downward with the latter losing 4.56 percent of value. Following the cooling period of 45 minutes, the index rebounded and continued to recover. The Index closed at 36,060.88 points increasing by 104.19 points.

Participants/Activity

On average shares of 349 companies were traded. Of these 130 were gainers and 203 were losers and 16 remained unchanged.

Foreigners were net seller$34.24m during the week; companies were buyer by $3.20m, Banks were buyer $6.0m, Mutual fund net seller $4.93m, Insurance buyer $25.14m and individuals net buyer $10.92m. Volume leaders during the week were: Maple Leaf Cement Co. Ltd. 112m; Fauji Cement 101 m; Bank of Punjab 92m; K-Electric 51m; Pakistan Petroleum Ltd 34m; Hascol Petroleum 33m; OGDC 16m; TRG Pakistan 15m; D. G. Khan Cement 13m and Pioneer Cement Ltd 11m.

Triggers

– Reserves up by $32 million to $12.790 billion during the week ended on March 6.

– Oil falls 8 percent after Trump surprises with travel curbs.

– Rupee falls against dollar, which traded at Rs.158.60 in the interbank on Wednesday. After staying steady for six months the greenback began rising on Monday and posted a sharp jumps of Rs.3.65 to reach Rs.157.90 on Wednesday.

– ECC approves Rs.20 billion electricity subsidy for exporters till June.

– Auto sales decline across all segment declining in the range of 9.7-46.8 per cent.

Conclusion

The present meltdown on PSX and the reason for declining of index due to lower global oil prices could be a blessing for the country and the investors.

According to a research, on an annual basis $20/barrel lower oil prices could reduce Pakistan oil imports by $2.5 billion, which constitutes 50 percent of Pakistan’s current account deficit. The benefit will travel down to lower inflation and cut of at least 100 bps cut in policy rate in the upcoming monetary policy next week.

The world wide fall in stock exchange has successfully provided an opportunity for PSX to test its Risk Management technique for the first time. It proved to the investors that PSX doing better than most Asian bourses including India where Sensex eroded 8.18 percent.

Raees Uddin Khan,
Research & Development Institute of Securities Management Research & Training (Pvt) Ltd, Karachi.
Dated: March 7, 2020

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