Black Monday

Monday, August 24, was a hard, unforgiving day for Pakistan’s business sector as the Karachi Stock Exchange (KSE)-100 Index plunged sharply by 1,419.4 points or 4.1 per cent to end at 33,100.34. In a desperate attempt to trim losses, panicking investors offloaded as much as they could, dragging the benchmark further down, days after it had touched its peak of over 36,200 points. The development followed the plunge in regional markets amid fears of a Chinese-led rout, fuelling speculation that a slowdown in the world’s second-largest economy would spark a global crash like the one in 2008. China’s stocks have been ending negative since they reached a peak level in mid-June and, despite government intervention, have been unable to recover. With their growth numbers disappointing, investors feel the effect would be felt for a very long time. Add to this mix the tumbling price of oil and other commodities, and all this was enough for investors to think that the time was right to pull some money out of Pakistan as well — a market that has gained over 12 per cent since the start of 2015.

While some feel the increase of the KSE-100 Index had to be corrected — vindicated by the bullish sentiment witnessed on August 25 — the fact is that local investors are quick to follow the foreigners’ bandwagon. Foreign investors hold 30 per cent of the KSE’s free-float and control roughly 10 per cent of total market capitalisation. This compels Pakistani investors to follow suit when foreign investors sell, without realising that the latter have a different investment landscape altogether. In an attempt to trim losses in emerging markets amid economic slowdown, foreigners have to rely on realising gains from markets that have gone up. Hence, they sell. Local investors following suit means the market is pulled down a lot more than is needed and that is when smart investors look to increase their holdings again. Market fundamentals in Pakistan have not changed and this upheaval should only be temporary. While one cannot accurately predict the future of any stock market, it is safe to say that panicky investors were to blame for Black Monday. And after the crash of 2008, who can blame them. 

Published in The Express Tribune, August 26^th, 2015.

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