Billions lost in trade battle: Grim year for stock market as investors relocate funds

Market capitalisation goes down $22.2 billion in 2018

Salman Siddiqui January 01, 2019

KARACHI: The Pakistan Stock Exchange (PSX) proved to be a lost battleground for the second successive year in 2018 as it sent packing thousands of equity investors and wiped billions of dollars off the value of listed firms.

Dreams of those who bet that they would earn handsomely after the victory of Pakistan Tehreek-e-Insaaf (PTI) in July elections were shattered. Many of the equity investors were relocating their investments to fixed-return avenues.

Although the PSX managed to stay away from the title of world’s worst performing market in 2018, it largely failed to exit the ranks of poor performers. For the first time in over two decades, the market lost ground for the second consecutive year. In 2016, the PSX was the best performing market in Asia.

“When compared with global indices, the KSE-100 index was the world’s fifth worst performing market in 2018,” Topline Securities reported.

The deterioration in macroeconomic indicators, which worsened due to uncertainty about economic policy of the new government, confusion on whether Pakistan was going to the International Monetary Fund (IMF) and an unclear policy about how to fix the beleaguered economy, weighed on the market.

The benchmark KSE-100 index dropped 8.4%, or 3,404 points during the year and closed at 37,067 points on December 31 compared to the opening level of 40,471 points on January 1. It lost 27% in dollar terms during the year.

The market capitalisation - the total value of listed firms - plunged $22.2 billion, or 29%, to $55.4 billion by Monday compared to $77.6 billion before the trading bell rang on January 1, 2018. The year has burnt one-fifth value of the firms listed at the PSX. Foreign investors made record divestment of $537.4 million, according to the National Clearing Company of Pakistan Limited (NCCPL).

Average trading volumes dropped to a five-year low of 185 million shares, which were 22% lower compared to the previous year. “The deterioration in macroeconomic indicators played havoc at the PSX for the second consecutive year - which was the first time in 22 years,” Elixir Securities Director Research Hamad Aslam said in comments to The Express Tribune.

A 4.25-percentage-point increase in interest rate to a six-year high of 10% turned the market upside down. “The high borrowing cost has hurt corporate earnings, made returns more risky and that is why equity investors are seen relocating their investments to safer fixed-income instruments,” he said.

If all went well, there was a room for correction in the market. “Stocks in some of the listed sectors like pharmaceutical, automobile and cement were trading at much higher prices than their true fundamental values,” he said.

Taurus Securities’ analyst Mustafa Mustansir said strengthening of the US dollar against world’s major currencies amid a significant surge in US interest rate to 2.5% kept many emerging markets under selling pressure during the year and Pakistan was not an exception.

These developments encouraged foreign investors to continue divesting for the fourth successive year at the PSX in 2018. They have cumulatively sold shares worth a net $1.4 billion in the past four years at the bourse, according to the NCCPL.

A drop in the PSX’s weightage at the MSCI Emerging Market index to one-third of what was at the time of its reclassification in May 2017 also pushed foreign investors to pull out of the market.

PSX outlook

AHL Head of Research Samiullah Tariq voiced hope that the stock market would recover with expected improvement in the macroeconomic indicators. The biggest challenge to the economy - the current account deficit - has started narrowing down.

“We expect foreign inflows in 2019,” he said. “Rupee adjustment (against the US dollar) was the major concern of foreign investors that has been addressed now. Besides, the political noise has also settled down largely.”

His brokerage house has anticipated a recovery of 27% in the KSE-100 index to 47,000 points by December 2019. Besides, the PSX is expected to see eight new companies getting listed with the objective of raising billions of rupees to finance their business expansions.

Elixir Securities anticipates a 22% growth in 2019.

Banks and oil and gas exploration firms, which carry almost 40% weightage in the benchmark KSE-100 index, would help the index perform better next year, analysts said.

Last session

Volatility marred the last stock trading session of the year as the KSE-100 index recorded sharp swings due to political tensions in the country.

At the end of trading, the benchmark KSE 100-share Index recorded a decrease of 100.35 points or 0.27% to settle at 37,066.67. 

Published in The Express Tribune, January 1st, 2019.

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